When the tide goes out…

By | 1st May 2017


“When the tide goes out, then we will see who has been swimming naked” is my favourite Warren Buffett quote.

Let’s look at two people, Bob and Billy, who want the same things:

– the latest fruit smartphone £700

– a flash watch £1,000

– a sporty new car £19,000 (for example a Ford Fiesta ST)

– a top fruit laptop £1,500

Billy has everything today on finance, while Bob saves up an amount equivalent to Billy’s monthly repayments.

After only 3-4 years Bob can buy the same things for cash, and then start saving towards their replacement at some point in the future based on expected life.

(You can get many items at a discount for cash. Sometimes, crazily, you can even get a signing discount by signing up for finance and cancelling it the next day – settling the discounted amount with cash instead before any interest charges!)

So, the only difference is that Bob waits 3-4 years initially – after that he can also upgrade the items regularly in future just the same as Billy, but from savings rather than finance.

If we meet up with them both shortly after they have bought these things then they might both appear to be successful people however…

If the tide goes out and they both lose their jobs, then we find out the real situation:

Billy can’t afford the repayments, so not only does he have everything repossessed he is also left with debts of many thousands. He will be paying for things he no longer owns for many years to come.

While Bob has assets that he can realise should he need the funds. Even though the second-hand value of many things is much less than the retail amount he would have paid, he will be in a much better position. He could even just trade down to better value options, keeping the same types of things while also freeing up cash for the immediate future.

Be like Bob, not like Billy.

An article in the press yesterday:

Britons load up on store cards, payday loans and car finance at astonishing rates as worried regulators plan a borrowing crackdown – 30/4/2017

James McBrearty started his own business from scratch in 2006, to help the self-employed.

He helps people to escape from the corporate world and shares his thoughts here on the changing world of work, technology and personal finances; as well as the occasional travel post.

Over the next 10 years things are going to change significantly. James is a follower of frugality and minimalism; and an advocate of F.I.R.E. to minimise the coming disruption.

3 thoughts on “When the tide goes out…

  1. Steve from Arkansas

    Nice teaching, but the idea that the words sporty and Ford Fiesta could ever appear in the same sentence is mind blowing. Mustang, Porsche, BMW ok, but Fiesta? You lost me there, but I am from the States so it is likely a cultural mismatch.

    1. James McBrearty Post author

      Yes, the car culture here is somewhat different – the UK press love the Fiesta ST as it’s affordable, quite fast(under 7 seconds to 60) and suits our small congested roads.

      The Ford Fiesta car is our best-selling model, as hatchbacks suit most driving needs.

      Personally I’ve had a string of US type cars – Maxima, Mazda6, Camry, Acura but am now driving a Toyota hatchback as the roads and car parks are really too small for a full-size sedan.

      I read an article in US autotrader about how they had Fiesta ST’s at the GT40 launch event, which went down well.

      One of our top performing cars here is the VW Golf – the Golf was the fourth best-seller in 2016 but the R model has over 300hp, four wheel drive and will do 0-60 in under 5 seconds.

      1. Steve from Arkansas

        My daughter had a Golf, nice car but impossible to find a mechanic in rural US. Very nice blog, interesting to see the cross cultural aspects.


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