Spending Your Way to Savings

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I had a lot of fun with the December "Best of Everything" issue of SmartMoney magazine. My copy arrived over the weekend, and I couldn't wait to see how much I could save by picking the smart choice. As it turns out, being frugal is a relative concept.

The feature article identifies nine holiday-season "splurges you deserve." First off, it seems, I just have to get a plasma TV. The winner is a model for the bargain price of $3,499. Bargain price? But of course! One of the runners-up costs $4,999. See? With my first splurge, I've already saved $1,500!

There are plenty of other categories. In place of my $15 wristwatch, I can upgrade to something called a TimeWalker for just $2,150. A bit more expensive, but it's still $1,300 less than the even more expensive model that's recommended as the magazine's all-around favorite.

Similarly, picking a $3,000 road bike can save me $600 over the runner-up, even though I haven't actually ridden a bicycle in years and have no interest in it now. And since my wife constantly fantasizes about vacations, I think I'll pick up a week at Lake Placid for just $4,480 per couple. Compared with the runner-up Antarctic cruise, put another $8,000 in the savings column.

Do I need all that stuff? Nah. But I'd sure hate to miss that savings!

But on further reflection ...
As tempting as these items are, maybe I ought to think about what spending that money could really cost me. Let's see what happens when I plug the prices into a future value calculator at 10%, which is just about the market's historical annualized return.

Best Of ...	Price	10 Years	20 Years	30 Years
Plasma TV	$3,499	$9,076	$23,540	$61,055
Dress Watch	$3,450	$8,948	$23,210	$60,200
Road Bicycle	$2,999	$7,779	$20,176	$52,331
Winter Adventure	$4,480	$11,620	$30,139	$78,173
Splurge Total	$14,428	$37,423	$97,064	$251,760

Wow! It turns out that the splurges my wife and I deserve could cost us more than a quarter of a million from our portfolio 30 years down the road. All that for a bike hanging in the garage, a TV with nothing worth watching on it, a watch that's so nice that I don't dare wear it on the street, and a photo album full of vacation pictures.

That sounds pricey. Maybe splurging on luxury purchases isn't the best of strategies for our household finances -- even if they are a bargain. For us, this holiday season's smart money will go into our IRAs!