Long-term readers know that in late 2014, 8 years out of residency, my wife and I decided buy a wakeboat after realizing it was okay 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.
Buying a Wakeboat
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.
Wakeboat Lessons Learned
# 1 Don't Buy a Boat!
Some people buy a boat to rub it with a diaper in the garage. Not me.
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
That old boat wouldn't pull this many people on a tube
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
That wave looks a lot bigger with a 10-year-old on it
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
On a boat, your kids are captive. They have to spend time with you.
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 wakeboat even when they can't afford it!
What do you think? Ever bought a wakeboat 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!
Love this post…we are always thinking of buying a second home/vacation home…something we can use/rent now and eventually live in more often as we get older… and trying to do pros/cons of this…in case you need an idea for another post!…
I think you could probably just use this post! All the same reasoning for that as a consumption item. The only difference is the second home costs more and is more likely to appreciate. But don’t mistake it for an investment. It’s a consumption item.
As you said, a boat owner has two happy days. That is why I decided on a kayak. It is not as fast as a boat. It is fun and allows me access to all of my local lakes. It was a fraction of the cost of a boat and provides some good exercise. Most importantly, it is stealth and allows me to sneak up on the fish.
The fact that there is almost zero hassle with maintaining and storing is huge.
We owned a boat for 20 years and had a very similar experience as you. We had a 20′ Four Winns bought new for $16,500, cash in 1993. It was great when the kids were young as we had many friends and adventures. It was true quality time while building some new adventure skills. When the kids were in high school, priorities shifted, and boating time eroded. It also became a hassle to keep up the routine maintenance on a boat, which I did 90% on my own. One could find any part on the internet, just needed the time to make the repair or the part swap. We budgeted $1000 annually for the boat. I’m very glad I never upgraded or bought a bigger boat. a twenty footer fit our spending budget and lifestyle just fine. It was just enough boat for us and served our family and friends well.
One does not realize how expensive things are while you are in the midst of consuming them. It’s only when the things start consuming you or are sitting idle does one get the analytical perspective of their cost.
We sold ours for $7,500 in 2013 to a family with young kids. It was a fully functional garage kept, lovingly maintained that looked just a shiny new as the day I bought it. Our boating experience floats a lot of memories and I don’t regret any of the time on it or working on it.
Yes, it was the happy day when it went to another family for them to enjoy and use her again.
As someone who has always wanted to live on a lake and get a jet ski/boat, this was pretty interesting to read. Once you added up all the annual expenses it was crazy to see just how expensive a boat is. Crazy!
I really enjoyed reading, thanks for the insights on boating and finance.
I generally share your thinking on a couple points like ‘the things we own, own a piece of us.” I have never framed spending as a way to avoid ‘financial hunger’ and deprivation though. That’s really a nice framing for it. Some of the ways to avoid feeling deprived are psychological and environmental. Don’t hangout with the heli-skiers all the time if you don’t want to get interested in heli-skiing. Don’t live in the neighborhood that lives well beyond your means. I think it is so important to frame this way because it’s such a long game. You can’t feel hungry forever and not gorge given the chance. I think it’s Stephen Colbert that used to say, “only the hungry dog knocks over the trash can.”
Learning the spend only on the things that truly bring you some happiness and shared experiences is a very difficult thing to do. You have to unwind a natural impulse against spending as well as figure out what things bring you joy and work for your family and friends at this time in your life.
Great post!
We’ve kept a boat at Lake Powell for 15 years. Our process and justification was the same-paid cash, can’t take it with you. Our best hours are hours on that lake-we call it Moki time. Our friendships, marriage and lives are infinitely richer for that $40k decision 15 years ago.
Fun to see your pictures-thanks for sharing this story!
I love Moki Canyon. Too close to the marina though!
We haven’t spent much time there since the water levels went down. When the lake was full, there was a finger off the canyon with a perfect jumping ramp-you could jump from 2 feet or 30 and a grotto with lots of shade. We’d spend full days hanging out in there. Now we tend to go to Knowles and Good Hope to get away from the crowds. Our first trip of the season is in five weeks–can’t wait!
5 weeks huh. Take a wetsuit. I’ll be there about the same time canyoneering. I’ve camped in both Knowles (multiple times) and Good Hope (one amazing October Fall Break weekend.) I know them well.
Why pay cash on a depreciating asset? That’s where your issue begins. Pay 20,000 down, finance 60k, and invest that 60k – at 9-10% a year you will earn more than the APR for financing (typically 4-5%).
How’s that philosophy worked out for you? Avoiding paying interest (among other things) made me a multi-millionaire in my early 40s, so I’ll stick with it for now.
Bunch of pussies you all are… unless I missed a comment about anyone who can appreciate a wakeboard/surf boat for what it’s meant to be used for and properly enjoyed. Only true enthusiast should apply, It’s a lifestyle… you just don’t go buy a boat, it’s not another item to purchase to impress the neighbors with. But most of you people reading this crap could never understand, this I’m sure of. Personally, I just ordered a $150k boat because I want to and I can;) It’ll be my 3rd boat I’ve owned new with no regrets. But hey… I’m rich and I’m a wakeboarder, so I tick off the boxes for the guy who actually uses it with no regrets.
A timely comment I read as I came back from a 5 day trip to Lake Powell. Another 25 hours on the boat.
I agree there is no issue buying one if (like me and you) you can afford it and you actually use it.
Love my wake boat. I first skied at age 6, now I am 58 . I have had 2 neck surgeries so I don’t ski or surf anymore. I am the driver for my kids and their friends. My wife and I love to cruise in our boat on a Minnesota chain of 14 lakes, over 14,000
acres. I wait all year for the 4-5 months of boating. The cost of wake boats is excessive because boats are made by hand in low volumes, compared to cars made by robots in high volume. Don’t calculate cost per boating hour, just keep boating.
Hope the ice goes out soon.
Thank you for this! I now have delayed my boat purchase (one year – at least) to pay off all short-term debts related to real estate acquisitions.
The annual boat cost was most helpful in planning/ budgeting. My current boat maintenance is around $2,000 per year (‘96 Whaler). New boat costs will be a bit more for an Axis I take it, plus obvious wake surfing gas burn. I hadn’t fully modeled these numbers.
I do use debt to buy cash flowing real estate without factoring price appreciation. Using fixed term mortgages until I cap out – seen too many loans called by banks on family friends. I’m sure you touch on this later; will research more. Not sure if you agree with that practice. Thanks!
Leverage works, but it works both ways. Be careful with it and don’t take on more risk than you need to in order to reach your goals.
Hi WCI,
Just dug up this post as i was perusing Boat trader to get a RIB chase boat for my kids sailing. I grew up on a lake with a simple runabout, and we are on a lake now with a 19′ sea ray runabout and a pontoon and a few sailboats cause when your kids sail, they can’t just sail one type 😉 so i’d like to think i know a thing or two about boat ownership.
I do take issue with your post in a few regards. Boats ownership does not have to be expensive. WAKE BOATS are expensive. I bought a boat in residency, i was down south and there isn’t much to do there in the summer but get wet cause its too darn hot out. My wife and i bought it used and we used it quite a bit (you become a popular resident when you own a boat). And i can’t say it was expensive to own at all beyond the modest purchase price (it was a sea ray as well). The 5.0L mercruiser sterndrive is in about a zillion boats so parts were cheap and could be found anywhere, and it really only broke once. Now in the midwest same thing, aside from the yearly winterizing which is about $250.00, we store it in our pole barn and thats about it. Gas i guess is there, but not as bad as a wakeboat’s gas costs.
So while you might spend $10,000 per year on your wakeboat; we use ours easily as much as you and we spend maybe $1000.00. (we just don’t have fancy graphics and a giant wake!)
Oh, and to make you feel better, while i was on boattrader, a brand new x24 costs $174,000.00 So feel good about your 80k purchase.
Yea, my boat is 5 years old now and with 6-8% increases a year, you can double the price of a boat pretty quickly.
My old I/O boat was definitely much cheaper without a doubt.
I have a quick question wouldn’t it be better to finance the boat as you don’t tie up your capital in a big depreciating asset and you can invest the raw cash in an appreciating asset, for instance, your 401k or similar retirement fund. This would only make sense for a boat over 20k-30k but what do you think is it wise if you have the capital available to buy a boat?
Depends on the rate of your finance and your real return on the opportunity cost. You can get 4-5% financed right now for a 20 year boat loan. You would need to get north of 8% before expenses to make this arbitrage work. Many people pay 6% for their boat loans and that’s just too high. YMMV
Are you going to finance your dishes, your groceries, and your appliances the same way? At a certain point, it doesn’t move the needle. I screwed around with some 0% kind of financing stuff years ago and now on the other side of financial independence I can testify none of that little stuff really ever made any significant difference and just increased the hassle factor in my life.
Do the math. Let’s say you get a $50K boat and finance it at 5% over 5 years. You then earn 8% on that. Quick math–average balance of $25K. 3% of $25K is $750K/year, or a total of $3,750. Not exactly life changing money. Meanwhile, you took on significant risk, impacted your cash flow, and embraced the hedonic treadmill.
I have had two junk boats which each cost between $800 and $1200, and one nice boat which cost $13,500. Now that my kid is grown, I don’t use the nice boat anymore, although there are two boat ramps 1/2 mile away. Boating alone is BORING. I’ve taken several women on lake dates, but they never do anything for me. No reciprocation, and I don’t even mean sex. One got mad because I didn’t want to take her out in the boat. I told her many times, “It’s a lot of WORK!”
So, I like to go to the ramps and watch the morons on weekends, or during thunderstorms. It’s lots more entertaining, and way less work.
What led me to this article was my wondering how much these fools are blowing on a late model wake boat ($35K and WAY up) plus the “Big Ol’ Truck” to haul the damn thing. My guess is that most of these slobs are upside down in debt.
I used to be a poor musician in Nashville. I got smart and got out of that mess several decades ago. Now I’m 66, paid my house off a few years ago, have no debt, but DO have peace of mind and plenty of savings to retire on when I get around to it.
Wakeboats today are starting to push $200K for the nicest ones.
OK, I am not a boat person. I went out on a boat with family once a long time ago. Since then, it has never occurred to me to do it again. It was perfectly pleasant, but not something I would seek out. Maybe I will do it again once or twice in my life. Or not.
This comment is about spending money for entertainment.
We have one of the cheapest houses in our neighborhood. It suits us and we have no interest in getting something more expensive or making our place fancier.
I have no idea whether we have more or less money than our neighbors. None of my business. I have no idea what kinds of vacations they take or what cars they drive. Since I don’t know or care how they spend their money, I am incapable of feeling a need to keep up with them.
I can understand that for some people life is a constant stream of struggling to spend more. I don’t get why knowing a person who has an expensive car would make me want one. I know that SOME people own expensive cars. I don’t understand why it should matter to me whether I know such a person. I have a car that suits my needs. I am not interested in other people’s cars, or houses, art collections or boats. Certainly no envy.
I don’t agree that one needs to learn to spend money. Our consumption has not increased in decades although our assets have increased a lot. We spend enough to support a comfortable lifestyle. Beyond that I am trying to maximize networth now and in the future. I am not seeking out new things to consume.
From this post, it seems my approach avoids a lot of mental anguish. ” My neighbor has a shiny bauble. So I need one too!” “Oooh! For only another $100,000, I can have a $100,000….thing. I hear the family across the street has a $100,000 thing. I need one.”
Or ” it is none of my business and not even interesting how the family across the street spends its money. ” No envy, No tortured attempts to justify the purchase or arrange financing. Just mind my own business and live my life.
You know you’re unusual in that respect, right? And that’s at least partly why you have been able to amass significant wealth.
I would pose a question though: Why are you trying to maximize net worth now and in the future? What is more than “enough” going to do for you?
We had a sailboat (actually 2) over different periods in our adulthood, and I really loved sailing (still do)!
However, there is probably a 7-10:1 ratio of the amount of time spent prepping a sailboat (working on boat, prepping the boat for the season with bottom paint, cleaning, repairs, etc) and doing “chores” to the amount of time on a sailboat actually enjoying it. The ratio is even steeper when you consider the “addiction moments” when the conditions are perfect and the sail is sublime.
Sailboats do not take much fuel, but the cost of sails, rigging, upkeep, bottom paint, storage, dockage fees (esp. in Chicago) put an exclamation point on the idea the the cheapest thing about a sailboat is buying it!
That being said, if I didn’t change from ER to Urgent Care (with the relatively large pay cut), I would be “Breaking Out Another Thousand” still. It is a big hole that you throw money into, but everybody has a hole-it just has to be a hobby or interest that you can afford to throw the money into, and that it is worth it for you.
Anther boating truths: What is (almost) better than having a sailboat? Having friends with sailboats!
7:1 would cause me to sell my boat rapidly. I’m frustrated by my 1:1 ratio.