Seller's remorse and my cost benefit analysis

[redwood_canyon]

Seller’s remorse. That little voice in your head that says don't sell it is useful, or you might use it someday. It is a pressing voice in many ways, but something that must be learned to ignore. I have recently gripped with it when selling something I have had for years.

   Years ago I bought a typewriter from an antique shop, hoping to launch into doing a bunch of writing. It never really happened, although the sound of typing was nice, it was loud and I mean loud. So I used it a few times and stored it away. Coming back from University I was looking at selling some possessions I have not used enough, one being the typewriter.

   I posted it, and kept thinking what if I just kept it. What if I got back into it. But I knew that wasn’t likely. So I sold it, at a coffee shop to a hipster couple who would use it. The $60 in my wallet now is wonderful, as I had purchased it for $15. And although I may have just sold a way to write, it gave me a reason to write on this blog.

   I would like to know if any of you Mustachians do this as well? MMM does a great job of breaking down costs such as a daily coffee into a huge sum over a few years. I do something similar but a bit different, pertaining to spending. I look at future value of saving using a compound interest calculator. A simple example is my typewriter, would I rather have it in 30 years or invest my $60 now to have $796 in 30 years. (9% compounded annually, about how my indexes do) Most of the time I chose the latter option. It really works especially for purchases, because it compares value.

   The basic mechanics of it is cost-benefit analysis. Which is a systemic approach to estimating strengths and weaknesses in alternatives. So the main question I asked was is this typewriter worth $796 to me now, the answer was an astounding no. I also use this to dissuade spending money, since I am a broke University student, who both needs to save for FIRE and paying off student debt. The equation for 30 years from now that I use is basically 13x. Do I spend $100 now and forgo the $1300 value 30 years down the road. I will be the first to admit, it is certainly not a perfect estimation or system. But the goal is not to calculate future wealth, it is to dissuade myself  from making unnecessary purchases now, by looking at a “big picture” of the future.

   That typewriter and its sale has inspired me to write more, this post and my last post were both prompted by the sale. And it has reaffirmed a strength in me towards saving and investing. I hope this helps someone out there in further developing their stache. Thank you very much for reading my post!

Note: Take this concept and apply it as you will. The 30 years is arbitrary for me, kind of just enough time to show compound growth in a meaningful way. Also I will be 50 years old then so I thought that would be a good comparison age. The 9% is also arbitrary just historically what my investments have earned. Also to the beauty of compound interest, while the estimate for 30 years is 13x the estimate for 40 years is 30x, 50 is 74x, 60 is 176x, and it goes on. I used the investor.gov calculator and did annual compounding on these rough calculations.

My question for all of you is, what sort of system to you use to weigh value?

[better late]

Yes, I use a very similar mental calculation. By back of the envelope calculations I determined that over about 25 years the compounding rate is about 10x.
It’s a simple way to make a small purchase feel significant. Like that $7 I might spend on lunch is actually costing older me $70.
It’s been surprisingly good to use talking with my slightly spendier spouse. We joke around a little bit about it but it helps illustrate why I care about $7 so much.

[Davnasty]

I feel like you've expressed two different ideas here, letting go of possessions and future value.

On letting go of the typewriter, it sounds like you made the right choice. On top of the $60 and it's potential future value, stuff has other costs. Storage, maintenance, transportation costs when you move, worry about protecting your possessions, and even the stress that comes from mentally keeping track of all your possessions. Each of these costs will be different for different people and circumstances, but they're all worth considering. When deciding to let go of smaller items (which can be more difficult if they're not valuable enough to sell) I try to imagine the item sitting on the shelf at a thrift store. If I wouldn't buy it, I should let it go.

Oh, and it looks like there's a post with almost the same title... http://www.mrmoneymustache.com/2015/07/02/if-you-wouldnt-buy-it-you-should-probably-sell-it/

As for the future value mentality, I do use it to make purchasing decisions but my calculations aren't quite as aggressive. I typically think about values 10, 20, and 30 years out at a compounding interest rate of 7% (9%-2% for inflation). 7% is convenient too, it means the value roughly doubles every 10 years.

[JZinCO]

MMM has written extensively on this. e.g. http://www.mrmoneymustache.com/2012/07/15/two-fun-tools-from-the-mmm-software-department/