A friend recently wrote about why he will never buy a timeshare. I’d like to share what he had to say with you. He wrote:
“There are three major paradigm shifts. They are what I call prosperity perspectives. Consider the following:
#1: COUNTING THE TOTAL COST
The first is what I call counting ALL the costs of a purchase, the TOTAL COST. When we want something emotionally we tend to down play the cost of something in order to justify it to ourselves. We choose to ignore the total cost, or minimize those costs.
The best way to control our money emotions is to put down in black and white on paper, what the costs are so we can’t justify them away.
In this case the timeshare points they were offering cost $15,000. Of course the sales pitch minimized the cost by showing zero percent interest and small monthly payments of just $400 for some period of time.
But upon looking closer, there was actually a $1500 closing cost fee plus 16% tax. Once you factor in those costs, what looked like a $15,000 purchase is now about $20,000. Not a small amount of money. But it doesn’t end there. There’s a $600 per year maintenance fee, a $220 per year Interval International fee if you want to actually trade to go to a place you want to go, and a $110 per year fee if you don’t want to use your points but want to push them to next year, which is a benefit they promoted heavily…and then if you don’t use it you lose it.
Those three fees add another 900+ dollars to the cost of the timeshares, plus the maintenance fees can and usually do go up over time. Most people never have the financial savvy or discipline to look at all the expenses of a purchase like this, but when you do, you’ll be able to count the TOTAL cost of the purchase, which gives you more clarity in making a good decision.
But this is just the beginning…
#2: TRUE PRE-TAX EXPENSE
The second prosperity perspective is considering the TRUE PRE-TAX EXPENSE of the purchase. The point is that you are using AFTER TAX dollars to make most purchases.
The true pre-tax expense of the purchase is figured by taking the TOTAL COST of the purchase and figuring out how much pre-tax money you have to earn in order to pay for it.
For example, if I was in a 39.5% tax bracket, plus 6% state taxes, I’m paying a full 45.5% tax on the discretionary money I would be using to make this purchase. So what does this mean? It means this purchase will cost me 45.5% more than the sticker price. In real dollars that means this $20,000 purchase really cost me $37,000. I would have to do the work to earn $37,000 in order to pay for a ‘$400’ per month payment!
This gets my attention! It also helps me think clearly about just how expensive this purchase will be, and get unemotional about deciding if I want to spend my money on that item. If that doesn’t get your attention, the next perspective should.”
Watch for part 3 and the conclusion in the next newsletter.Filed Under: Insurance Agent | Tagged With: Camp Hill, insurance agent, Pennsylvania, retirement planning