Long-term readers know that in late 2014, 8 years out of residency, my wife and I decided to loosen the purse strings a bit. We had lived like a resident for four years, then purchased our dream home six months after we moved to our “big boy” job. But even then it was only a minor increase in our lifestyle. By 2014, I had been a partner in my group for a couple of years and had reached my “peak income”, for medicine at least. We were already millionaires. In fact, by that time we had started to see some pretty significant financial success with The White Coat Investor. Our goal has never been to be the richest people in the graveyard. So that year we made a conscious decision to spend more on our lifestyle.
Part of that involved trading up our little 17-foot runabout for a 24-foot wakeboat. It wasn't the most expensive wakeboat on the market by any means, but it was the largest check I had ever written up until that point, about $80,000 when you add in tax, title, and license.
It's now been three seasons and about 330 hours on the engine and I think we can now step back and take a look at that decision. Since this is a financial blog, we'll focus on the financial aspects. So in that spirit, here are 10 financial lessons we learned or relearned from buying a wakeboat. The first seven are a bit negative, the last three are more positive.
10 Financial Lessons from Buying a Wakeboat
# 1 Don't Buy a Boat!
Let's start with the obvious. The best two days in a boat owner's life are the day she bought the boat and the day she sold it. A boat is a hole in the water that you throw money into. BOAT stands for Bring Out Another Thousand. This is all true. We owned a boat for 5 years before buying this one. We were well aware of the financial issues of boating. We knew that was all going to get worse by upgrading. But even so, I have been surprised by just how much more expensive this has been. This thing GUZZLES gas (about 2 miles per gallon when the ballast isn't full for surfing). Parts are ridiculously expensive. A propeller is $600. A little plastic piece might be $130. Carpet, upholstery, and gel coat repairs are crazy expensive. Don't kid yourself. If you buy a boat you will hemorrhage money. We certainly have. Which brings us to lesson # 2:
# 2 Boating Is a Rich Person's Sport
If you are not a rich person you have no business boating. I made a mistake on a boating forum once expressing surprise at how many people were willing to finance a boat purchase. They lit into me like I was insane. A later poll showed that about half of the people on the forum were financing their boat (including many that were much less expensive than mine). I cannot imagine after paying for gas, maintenance, accessories, repairs, storage, and license to then go and make a big old boat payment. It would be terrible to be writing a check in January for a boat you hadn't seen for three months knowing you won't be putting it in the water for another five months. Like many other things in life, boating is completely optional. It is not compatible with financial success on a middle class income. It belongs in the same category as heli-skiing, having horses, owning a second home, and flying planes. If you can't afford doing any of that, don't buy a boat. In fact, heli-skiing is way cheaper than boating.
# 3 Pay Cash for Luxuries
As noted above, a boat payment in addition to all the other boating costs is crazy. But more importantly, saving up for luxuries is a great financial habit to get into. If you actually save up for something BEFORE buying it, you're more likely to understand exactly how much (in money, time, and life energy) it really costs. In fact, there will be a lot of luxuries you'll just decide not to buy at all as you save up for them.
There is another benefit to paying cash. Imagine, if you will, that we ran into some sort of serious financial issue. Not only do we avoid the curse of having a boat payment in that situation, but the boat actually becomes a blessing because we can sell it, effectively trading it for a lump sum of cash. No, it won't be anywhere near what we paid for it, but we could live comfortably for many months on what we could sell our boat for. I think it's okay to borrow a reasonable amount of money for your education (1X expected gross income) and your main home (2X expected gross income). But don't borrow for anything else, especially a boat.
# 4 It's Not the Purchase Price
$80K is a lot of money. Some financially independent families could live on that for 2-3 years. But that's not even the biggest cost of buying a boat. It's all the other stuff. You know like a “truck to pull it and a Yeti 110 iced down with some silver bullets.” What does it really cost to buy this stuff? Let me give you a glimpse:
- Gas to drag the boat to the local reservoir: $25
- Gas burned in the boat: 67 gallon tank x $3/gallon = $200 (always burn 1/3 tank/day, sometimes 1/2)
- Gas to drag the boat to Lake Powell and back: $175
- Typical amount of boat gas burned in 5 day trip to Lake Powell: $700
- Trips to Lake Powell in 2017: 5, 2016: 4, 2015: 5
- Winter boat storage: $625/year
- Winterizing and end of season maintenance: $500
- Repairs in 2017: $1000
- Accessories in 2017: $1500
- Days spent messing with (not enjoying) it: 4-5 half-days a year
- License for boat and trailer: $500 a year
- Insurance: $150 a year
Every year is a little different, but the point is that we could buy brand new skis, winter clothing, and season lift tickets for the whole family every year for what we spend boating, and that doesn't include the cost of the boat at all.
# 5 Depreciation Is Real
Very little of the “stuff” we purchase in our lives appreciates. Most of it depreciates. Some of it faster than others. Actually, on the grand scale of things, boats aren't terrible. I mean, look at how quickly food depreciates. Try to resell something you bought in a restaurant two hours ago some time and see what you can get for it. Clothing isn't much better. You know why Goodwill doesn't pay you for your clothes, right? It's because they wouldn't be able to keep the lights on even if they were only paying $1 an item. But, like a new car, a new boat depreciates as soon as it leaves the dealer. Just like with a car, there is a boat blue book. It says my boat is now worth $68,000. So it has depreciated about $4,000 per season. Granted, that ignores all the taxes I paid, but if I sold it, the buyer wouldn't have to pay those taxes, so it's still real depreciation. Add that on to all of the above, and you can see that this is a $10K a year hobby. Or about $100 per hour the engine is run. And we use the boat a lot. Imagine if you were only putting 20 hours a year on it like lots of boat owners. It could easily become a $500 an hour hobby.
The good news is depreciation can be minimized a bit or even reversed if you're willing to buy used. Our old boat was a 2002 bought in 2010 for $6,000 and sold in 2015 for $7,500. Crazy I know, but a true story.
# 6 You Feel a Need to Use It
Once you've spent a bunch of time and money on something, you feel a need to use it “in order to get your money's worth”. Even if there is something else you'd rather do. This happens to lots of people who buy timeshares and second homes, but it also applies to toys like boats, snowmobiles, ATVs, bicycles, and motorcycles. Everything you own owns a little piece of you. That includes your past (i.e. the work you put in to buy it), your present (the money and time you're using to maintain and use it), and your future (the money and freedom you could have if you had invested the money instead of using it on this particular item). This can be a good thing if it gets you out of the hospital and on to the lake with your family and friends, but it can also be a bad thing if it keeps you from doing what you would really like to do.
# 7 A Boat Is a Big Rock
I often remind readers that in personal finance, it is the big rocks that matter. By this I mean it isn't the lattes that are causing you to not become wealthy, especially on a physician income. It's the cost of your housing, the cost of your transportation, the cost of your debt, and the cost of your childrens' schooling. Well, a boat is a big rock too. If you take up boating before you become wealthy, it may very well keep you from ever becoming wealthy. You can blow a lot of money on little rocks (minor purchases and less expensive hobbies) for the cost of one big rock like a boat.
# 8 Buy Something That Makes You Feel Rich
Let's move on to some of the more positive aspects. There are two important principles I have discovered that have helped me to become wealthy. The first is that in order to reach your financial goals, you have to ensure you never feel deprived. Feeling deprived while trying to build wealth is like feeling hungry while trying to lose weight. It's going to sabotage the whole effort. You must ensure you spend enough to not feel deprived. Once you do become wealthy, it's a balancing act. You don't want to regret a purchase, nor do you want to regret not making a purchase. Continually ask yourself, “If I don't buy this, will I regret it later?”
The second principle is to reward yourself periodically for doing a good job with your finances. Sometimes, particularly before you become wealthy, rewards can be small things, like a meal at a restaurant or even a candy bar. Other times, it can be something expensive like a boat or a trip to Belize. All work and no play makes Jack a dull (and very unhappy) boy.
By following these two principles, you can stay on the plan, reach your goals, and maybe even have some fun along the way. Like climbing a mountain, it is more about the journey than the destination.
# 9 Relative Wealth Matters More Than Absolute Wealth
There are a lot of wealthy people in this world who feel poor. Unlike them, I feel rich. Part of the reason I feel rich is that I make more and have more than the vast majority of the people I associate with regularly. “Buy the cheapest house in the nicest neighborhood” might be good real estate advice, but it's a terrible way to avoid going broke. Not only do the Joneses have more than you do, but so do the Smiths, the Browns, the Martinez, and the Nguyens. That partially subconscious drive to spend is much stronger when you're surrounded by people with more than you have. I might not have the nicest house in the neighborhood (in fact according to Zillow it's the cheapest one on this side of my street), but I do have the best boat! I suspect I'm also one of the few without a mortgage. The behavioral finance data is very clear in that it really does matter who you hang around.
So figure out ways to use that to your advantage. You don't need the best house, the best car, the best boat, AND the best vacations in the neighborhood. Just pick one of them and focus on that when making the inevitable comparisons in your mind. Or better yet, try to become a little more immune to what people around you are doing financially.
# 10 Money Is to Be Spent
As we go through life, we need to learn how to make money, save (invest) money, give money away, and yes, spend money. Don't become imbalanced by only learning to do one or two of these things. Learn how to do all of them. All of them can and do bring joy if done correctly. If you haven't figured out a way to spend money so that it brings you happiness, I suggest you work on that aspect of your financial life a little more. The vast majority of Americans don't have a problem with that. Their issues tend to be figuring out a way to boost happiness while earning and saving money, but it takes work to earn, save, give, AND spend money well. Don't expect it to be easy. One of those four items is more difficult for you than the other three. Resolve to do a better job in that area this year.
I don't know about you, but Katie and I don't save money in order to die with it. We plan on spending (or giving away) the vast majority of the money we earn (and our money earns) during our lifetimes. While I kind of enjoy investing, it is far from my favorite hobby. We invest to live, not live to invest. Yet spending in a way that increases happiness is the most difficult of those four tasks for me. I still feel a twinge of guilt spending $50 in a restaurant, despite the fact that we're saving something like 2/3 of our net income lately. I've found a few ways to work around it—I let Katie do most of the purchasing, I purchase activities/trips in advance so I can avoid “ruining” the activity by having to spend while I'm there, I use a credit card so it isn't as painful to spend, and I buy expensive toys periodically like boats, but I'm not sure I've mastered it yet.
If you can afford to buy something, for cash, without keeping you from reaching your most important financial goals, and it will actually make you happier, then go buy it. For us, that item was a boat. We have had some absolutely incredible times in the last three seasons with that boat. We rarely go with just our immediate family. We bring siblings, cousins, neighbors, the local Scout Troop, friends, and our kids' friends with us. We share an experience that many times they could not afford, and that makes us happy. We go to wild, untamed places and have incredible adventures. We learn new skills and are bonded together. 330 hours, and that's just the time the engine was running. If we averaged 3 hours a day of engine time, that's 110 days, or about 37 days a year. A month's worth of experiences, each of the last three years. When I look at it like that, maybe I can understand why people buy a boat even when they can't afford it!
What do you think? Ever bought a boat or a similar financially stupid purchase? Why or why not? Which financial task is most psychologically difficult for you—earning, saving, giving, or spending? Comment below!