If it flies, floats, or flirts, you should rent it not buy it. This personal finance cliche' not only brings a chuckle, but also contains a great deal of wisdom. There are certain consumption items that are adept at hiding their true cost, have significant ongoing required expenditures, and are often mistaken for investments. While some true cynics may include marriage in this list, my list contains the following items:
The True Costs of Consumption Items
Most boat owners know that a boat is a “hole in the water that you throw money into.” It is relatively easy to spend $80,000 on a boat designed just to wake-board. That, of course, doesn't include the trailer, the truck to haul it, the wakeboard(s), the tow-rope, the life jackets, the wet suits, the towable inflatables, the repair costs every time you nick a rock with the propeller, the insurance, storage fees, the licensing, the repairs and licensing of the trailer, the decrease in life expectancy of the truck, the gas, the required maintenance, and the time off work to do the required maintenance or repairs (or if you prefer, to take it into the shop.) If you ever plan to sell it, you'll quickly learn that boats depreciate an order of magnitude faster than any car when you drive it off the lot. And for some odd reason, per hour of use, boats just break a lot more than cars do.
Now don't get me wrong. I love boating. I even own a boat. In fact, the reason I haven't posted for 5 days is that I just had a wonderful extended Memorial Day weekend cruising around Lake Powell with my family. We created priceless memories and had an awesome time. The kids love it, and we love it because the kids are captive in it. When you're stuck in an 18-foot boat together, you HAVE to spend time together. But I was well aware of what a money sink a boat can be from the very beginning. I went into it with my eyes wide open. We considered our needs/wants and didn't buy more boat than that. We bought used (the old guy selling it couldn't get in and out of it anymore), it was in excellent condition, had never been in salt water, and came with a trailer so brand new the knobbies were still on the tires. We paid cash for it (well less than a month's income) and even got the military to pay for half of it (love those DITY moves.) But even so, I have been surprised with just how much more we have spent to use it. I can't imagine if I'd bought an $80,000 wakeboarding boat on credit and had to rub it with a diaper after pulling it out of the water like most of the people I see down at the marina. And if you can spend $80K on a little boat, imagine what you could spend on a big yacht, a houseboat etc.
If you think boats are expensive, try airplanes. I grew up in the back of a Super Cub, a two-seat STOL (short take-off and landing) plane. My father is a bush pilot. Take everything I said about a boat, and multiply it by 3. He once bought some special aircraft duct tape to put on the leading edge of the wings to protect them from branches. (You don't want to know where I've landed in this thing. I swear my father thinks it is a helicopter.) I was surprised to discover the tape was $100 a roll. This was in the late 80s. A propeller costs upwards of $2000. Compare that to my boat prop at $100. But it is one thing to be stuck on a lake with a busted prop. It is entirely different to be in mid-air with a propeller problem. Just the “annual inspection” requires two days of a fully-certified airframe and powerplant mechanic's time. That's not cheap. Navigational equipment, multiple types of landing gear (you don't want to know what pontoons cost), it goes on and on and on. Getting the initial pilot's license costs more than my boat did. And insurance? Many pilots go without due to the expense. My father once estimated he could buy a new plane every 3 years for what he would have to pay to insure it.
A new timeshare on the market may go for about $20,000. The exact same timeshare on the secondary market often sells for $4000, or even less. I know of no other type of real estate with a similar rate of depreciation, including trailer homes. Like bad financial products, this is one that is sold and not bought. The real value (if there is any) is the savings on hotel rooms. But when you add in the time value of money, the serious depreciation, and the significant annual “maintenance fees,” the savings are quite likely to be negative. But if you feel you MUST buy a timeshare, at least don't buy it new. Go find someone who can't afford the annual maintenance fees (or worse, the mortgage on his timeshare), and buy it for pennies on the dollar. A friend recently bought a houseboat timeshare (yes, boats and timeshares, what a combination) for $500. At that price, it might be a good deal. I'm sure the original owner paid much more than that. But you've got to keep in mind there is a reason he is willing to sell it for that low price. In fact, after spending some time at the timeshare users group, you'll realize there are thousands of timeshare owners willing to PAY money to get out of their timeshares. Some timeshares can't be given away (not a bad strategy, by the way, if you can get a tax deduction for a donation to a charity.)
I'm not talking about betting on the horses (but I suppose gambling could be added to this list), I'm talking about owning them. Now, most doctors will never be wealthy enough to own a prize-winning racehorse on their own, but “shares” are often sold through clubs or partnerships. Like the timeshares, they are often sold as an investment. Don't make the mistake of looking at this as an investment. It is a consumption item and a very expensive one at that. Be sure to read the fine print to know how much of the ongoing expenses you can be on the hook for.
5) Auto Racing
Believe it or not, lots of people race cars at many levels that never make it onto national TV. Most of them would have come out of it better financially if they'd joined the local country club instead. At least with the country club membership, you get to see the price up front and do a quick mental calculation to see how much each round or social event is going to cost you. With the car, you not only have the initial outlay, significant maintenance and repairs, but you also have the constant temptation to make it faster. Faster isn't cheap.
6) Powersports–Jet Skis, Snowmobiles, Motorcycles, Dirt Bikes, ATVs etc.
Like the other items in the list above, these toys are expensive to buy, maintain, and repair. Unlike most of them, these toys are ridden hard on purpose. Nobody takes their airplane out and lands on a shorter and shorter airstrip until eventually, they don't make it. But with powersports, you're always trying to take a corner faster, catch more air, climb higher on the hill etc. If you haven't rolled one of these, you haven't been on it long enough. If you do any kind of trauma work, you've probably realized the expense of the hobby is nothing compared to the cost of the medical bills associated with it. Oh, and don't forget the truck and trailer.
Everything Owns a Piece of You
So what should a wise doc do? Should your only hobbies be crochet, jogging, and basketball? No. But you need to realize that everything you own, owns a piece of you. A $2000 road bike bought at age 30 might mean working a month or two longer prior to retirement. A boat might mean a couple of years. Happiness usually isn't found in acquiring stuff. So, if you must delve into an expensive hobby, consider the following points of advice:
1) Buy used and pay cash.
This is a consumption item, not an investment.
2) Try it out first.
Renting is cheaper than owning for many people. Figure out how many days a year you would need to use this toy before owning is cheaper than renting. Are you really going to use it that much after the first couple of years?
3) Understand and consider the ongoing expenses up front.
Talk to people about what they're really spending on this hobby.
4) Have an exit plan.
When you no longer use it regularly, how will you sell it? Can you sell it? About what will it be worth?
What other hobbies carry expensive hidden costs? Do you think any of these purchases should be considered investments? Comment below!