I did an investment tip about this same subject several years ago, but I wanted to do a little bit more detailed look at this idea.
Whenever we are making a financial decision, we really need to do the math, to see if it makes any sense. This applies to very small stuff, as well as big stuff. Examples:
If you buy a car just because it gets better gas mileage, you really need to take a hard look at the numbers. If it will save you $1,200 a year in gas, but the car costs $30,000 you will never get your money back after depreciation, financing costs, etc.
You bought a screwdriver to replace the one you lost for $5 at Home Depot, which is 7 miles away. Now you just found the old screwdriver. Should you return the new one? Consider that it probably costs you 50 cents a mile to drive your car, or $7 to return that $5 screwdriver.
Recently I sold a closed end bond fund that was trading at a 3% premium to it’s NAV. The yield on the fund is 4.5% and I hate to give that up. But it makes no sense to essentially pay $103 for $100 worth of bonds.
It costs about $1,500 a week to rent an RV. That same RV costs about $60,000 new. You might think, well that $60,000 is a one time expense. However, unless you are going to be driving it at least 10 weeks year, it probably makes more sense to rent (consider the cost of repairs, storage and insurance). This is also true for things like timeshares and vacation homes.
My point is, consider all the costs. What looks on the surface like a good idea (I’m going to save $1,200 a year on gas!!!), may just make no financial sense once we break out the calculator and do the math.