Making A Big Purchase
Jason and Sally were interested in buying a yacht. We had been working together for several years and their portfolio had done well. But a yacht would be expensive. Then there were the mooring fees, insurance, maintenance, sailing lessons, etc. But they were passionate about getting their yacht.
What Money Means To Them
When I first met Jason and Sally, we discussed what money means to them, what it represents. For them, it was the freedom to travel to new places and have new experiences. So, a yacht was just the type of purchase I might have guessed they would make. But at the time neither of them had any sailing experience.
Now they envisioned trips along the UAE coastline. Discovering secret beaches and mooring up overnight with just the stars for company. But it was not in the budget we had mapped out. The projections we had prepared a few years earlier needed to be remodeled.
Weighing Up The Big Purchase Options
They had a few different types of yacht in mind at different price points and they wanted my advice. Should they buy, or rent? If they were to buy, how much should they spend? Should they take a loan or buy it outright? How would it impact their longer-term plans?
Together we worked out the total cost of buying a yacht and maintaining it for several years. We discussed the option of outright purchase compared to a loan. Whether they would be buying a new or second-hand model. Then we added back in the possible sale price when they decided to upgrade or move on to their next project.
Modeling three different scenarios based on the price of the yacht and costs, Jason and Sally were able to see the potential impact of the yacht on their long-term finances. They could then make an informed decision as to whether the benefit they would receive from the yacht was worth the impact on their finances. From the calculations, they could also see what they would need to achieve over the remainder of their working lives to accommodate the expense of their yacht and retain their standard of living when they choose to stop working.
Jason and Sally found a yacht that was right for them based on what they wanted to do and the budgets we put together. With the advent of COVID, the ability to get out of town for a day or two has been an extra benefit that they had not foreseen.
Importantly, their use of their capital remains aligned to their values and what they want to achieve over the long term.
Statement of Financial Purpose
One of the documents which helped Jason and Sally was their statement of financial purpose. This document is a touchstone that is designed to be your point of reference when making important financial decisions. Every statement of financial purpose is different but they all include three important points: why you are planning, who you are planning for, and what you will achieve through your planning. The document is concise and is designed to fit in your purse or a wallet.