How To Own Expensive Things When You’re Frugal

How To Own Expensive Things When You’re Frugal

Being frugal doesn’t mean you have to buy cheap things.

In fact, the opposite is true. Choosing the more expensive option often saves you money.

What’s even better is that for certain types of products, with a bit of planning you can own these things for free.

When I first got into photography, I didn’t get entry level cameras. I got Canon and Nikon gear worth thousands of dollars. EOS 5D and 7D bodies. L-series lenses. Specialty macro and ultra wide angle lenses that I wanted to experiment with. Battery grips, flashes, filters, and more.

Final cost for most of that equipment: $0

When I first got into cycling, I didn’t get a budget bike as many people suggested. I got a nice carbon fiber road bike with Shimano Ultegra components. Worth well over $2500.

Final cost for me: $0

How was this possible?

The key is to understand how particular products depreciate over time.

Nearly all consumer products have a steep drop in value after the initial purchase. We all know this already, which is why for some products it’s smarter to buy used.

But the depreciation behavior after this initial drop is where it gets interesting.

In some cases, the value continues to decrease steadily over time in a gradual but continuous fashion. As the item is used and becomes dated over time, its value diminishes.

This is illustrated in Depreciation Curve 1 below.

Depreciation Curve 1

But for other products, there is a window of time after the initial drop where the value doesn’t decrease much, if at all.

If you take advantage of this, you can own these types of products essentially for free.

In the case of the camera equipment and road bike that I mentioned earlier,  I bought all of those items lightly used, owned them for a few years, and sold them at the same price I bought it for.

The key is to buy the item when it has already taken the initial depreciation hit, own it during the window of time when it holds its value well, and sell it before the value starts to diminish again.

This is illustrated in Depreciation Curve 2 below.

Depreciation Curve 2

If you sell at the same price you bought it for, then your total cost of ownership is $0.

Repeat this process and you will always have the latest and greatest without paying a dime. The window of time when you own an item will vary depending on the product, but it can be several years or more. I’ve done this many times.

How do you know what types of products this works for?

You need to have an understanding of your product and the market to do this.

Here are some general characteristics of products that this works for:

  • It must hold up well to use. With proper care and use, it should be hard to distinguish from new even after moderate usage.
  • There must be a sizeable second hand market for it. So it’s easy to find a good quality used item, and easy to sell when the time comes.
  • It must be something a lot of people want, but is not so cheap that they just buy it new.
  • It must not be something that becomes outdated quickly. There should not be a new version or model released frequently.

Example: high end camera equipment fits these characteristics perfectly. Take care of your lens and it will look and perform just as well after 2 years of use as it did when it was new. Camera equipment is expensive and there is a huge market for second hand gear. High end models don’t have a new version released for several years. For lenses, there is often a 5 to 10 year gap before a newer better version is available. This is not true for entry level models though – so this wouldn’t work as well for Canon Rebel series cameras for example, which have a new version released quite frequently and are cheap enough that many people can afford to buy it new. So you would be better off buying a more expensive model in this case.

You also must be willing to put in the effort to do a bit of research to know when to buy and sell (i.e., know when new models are due to be released), find a good deal on a second hand item, keep it in good condition, and sell it when the time is right.

With practice, it really doesn’t take much time. And being able to own all of these things essentially for free is well worth the effort.

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