4 ms·

After 4 years you paid for the sofa 2400$, "rest of your money" is -400$, sofa doesn't belong to you, and in case of scummy renter you own money for damage repa

After 4 years you paid for the sofa 2400$, "rest of your money" is -400$, sofa doesn't belong to you, and in case of scummy renter you own money for damage repairs and cleaning. Ready for legal litigation?

Barrin92 7y ago
The point of the exercise is to invest the money you didn't pay into something that earns you money. If you put the 1950 bucks you didn't spend into stock, you're making money. And in case of damages and repairs, if you own the sofa, you're always sitting on the damages. Homeowners for example routinely spend thousands of dollars per year on their houses, whereas renters (generally), have repairs covered by the landlord. this is a basic situation of opportunity cost. You can't just tally up the renting costs while ignoring the freed up capital, this is the exact mistake people make when they prematurely buy.
- TeMPOraL 7y ago
  As a regular middle-class person, how do you put $1950 in stock to make more than $400 in 5 years risk-free and time/effort-free?
  - Barrin92 7y ago
    index funds, they've averaged about 7-8% over the last 20 years and cost you basically nothing. mind you renting your toothbrush probably isn't worth it, but if you're thinking about spending thousands of dollars and compare that to the compound interest you earn in a passive fund over a few years, you'd be surprised how much you lose out on. In fact that's one of the drivers between middle class and upper class inequality. The upper class invests primarily in capital.
    - dagw 7y ago
      compare that to the compound interest you earn in a passive fund over a few years So I did. Remember you've still got pay the $50/month out of that savings. Even with 7% guaranteed annual interest on your initial investment you're still losing money after month 46 with renting at $50/month compared to paying $2000 up front.
      - jbarberu 7y ago
        If the company renting out the couch didn't come out on top, they'd just put their money in index funds instead of buying inventory...
    - Dylan16807 7y ago
      $1950 invested and pulling out $50 every month. If you get 10% interest, at the end of four years you have... negative thirty dollars. And you still don't own the couch. $50 a month for a $2000 couch is equivalent to a debt at 26%. You can't overcome that with investment. It only makes sense if you're planning to throw it away very soon.
  - vonseel 7y ago
    Apparently, you buy Apple, Tesla, or Netflix, and get lucky because you chose to invest during a wild expansion like we’ve seen since the early 2010s. I’m not sure what you do when you’re in a down market. Last time I lost a lot of money because I was dumb.
  - avgDev 7y ago
    I was under the impression that putting money in stock market is basically gambling and you should be ready to lose that money. Putting money in a property especially if you can do your own upgrades can really pay off. Example, bought a house for $280k,I invested about $50k, its worth about $400k now.
    - esoterica 7y ago
      Putting money into real estate is also gambling. Remember 2008?
      - avgDev 7y ago
        It is a lot less risky. Yeah 2008 happened, however, the prices at least in my area are back to 2007 levels. Short term real estate can be risky but long term it is a relatively safe investment.
        esoterica 7y ago
        The stock market has historically been very safe in the long term while risky in the short term as well. Edit: As long as you are diversified and not putting all your money into meme stocks, of course
- maccard 7y ago
  > You can't just tally up the renting costs while ignoring the freed up capital, this is the exact mistake people make when they prematurely buy. And you're deliberately oversimplifying the calculation, which is just as bad. You're assuming a guaranteed return of 7%, and that the capital isn't touched for the years. If withdraw $50 from your investment capital per month to pay the rental, the numbers don't come out as favourably. similarly, if you reduce the returns (7-8% is an average return, but it's not a guaranteed return, especialy on smaller sums where you may have to pay $25 per trade, or 1+% fees in fund management every year, or tax on the returns). Your point about renting being a viable option is valid though, your numbers are just inflated.
vonseel 7y ago
Very good point even if only because I was too lazy to do the math in my head. $2000 is a lot for a sofa, and if I understand correctly is what people spend if they want a sofa for a long time and not just a cheap IKEA sofa to throw out after the dog / kids ruin it in 2 years. If someone’s spending this much on a sofa, I hope they expect to keep it 10 years and should be buying not making payments!
- dsfyu404ed 7y ago
  A $2000(!!!) sofa should last you a major phase of your life. If you have three newborns then it should take everything they can throw at it for the next ~20yr. If your kids just moved out for good it should be the last sofa you ever buy. That said, you don't get what you pay for, you never get more than you pay for. Not being an expert in evaluating sofa quality I'll take the cheap Ikea sofas that last half as long.

Barrin92 7y ago

The point of the exercise is to invest the money you didn't pay into something that earns you money. If you put the 1950 bucks you didn't spend into stock, you're making money. And in case of damages and repairs, if you own the sofa, you're always sitting on the damages. Homeowners for example routinely spend thousands of dollars per year on their houses, whereas renters (generally), have repairs covered by the landlord. this is a basic situation of opportunity cost. You can't just tally up the renting costs while ignoring the freed up capital, this is the exact mistake people make when they prematurely buy.

TeMPOraL 7y ago
As a regular middle-class person, how do you put $1950 in stock to make more than $400 in 5 years risk-free and time/effort-free?
- Barrin92 7y ago
  index funds, they've averaged about 7-8% over the last 20 years and cost you basically nothing. mind you renting your toothbrush probably isn't worth it, but if you're thinking about spending thousands of dollars and compare that to the compound interest you earn in a passive fund over a few years, you'd be surprised how much you lose out on. In fact that's one of the drivers between middle class and upper class inequality. The upper class invests primarily in capital.
  - dagw 7y ago
    compare that to the compound interest you earn in a passive fund over a few years So I did. Remember you've still got pay the $50/month out of that savings. Even with 7% guaranteed annual interest on your initial investment you're still losing money after month 46 with renting at $50/month compared to paying $2000 up front.
    - jbarberu 7y ago
      If the company renting out the couch didn't come out on top, they'd just put their money in index funds instead of buying inventory...
  - Dylan16807 7y ago
    $1950 invested and pulling out $50 every month. If you get 10% interest, at the end of four years you have... negative thirty dollars. And you still don't own the couch. $50 a month for a $2000 couch is equivalent to a debt at 26%. You can't overcome that with investment. It only makes sense if you're planning to throw it away very soon.
- vonseel 7y ago
  Apparently, you buy Apple, Tesla, or Netflix, and get lucky because you chose to invest during a wild expansion like we’ve seen since the early 2010s. I’m not sure what you do when you’re in a down market. Last time I lost a lot of money because I was dumb.
- avgDev 7y ago
  I was under the impression that putting money in stock market is basically gambling and you should be ready to lose that money. Putting money in a property especially if you can do your own upgrades can really pay off. Example, bought a house for $280k,I invested about $50k, its worth about $400k now.
  - esoterica 7y ago
    Putting money into real estate is also gambling. Remember 2008?
    - avgDev 7y ago
      It is a lot less risky. Yeah 2008 happened, however, the prices at least in my area are back to 2007 levels. Short term real estate can be risky but long term it is a relatively safe investment.
      - esoterica 7y ago
        The stock market has historically been very safe in the long term while risky in the short term as well. Edit: As long as you are diversified and not putting all your money into meme stocks, of course
maccard 7y ago
> You can't just tally up the renting costs while ignoring the freed up capital, this is the exact mistake people make when they prematurely buy. And you're deliberately oversimplifying the calculation, which is just as bad. You're assuming a guaranteed return of 7%, and that the capital isn't touched for the years. If withdraw $50 from your investment capital per month to pay the rental, the numbers don't come out as favourably. similarly, if you reduce the returns (7-8% is an average return, but it's not a guaranteed return, especialy on smaller sums where you may have to pay $25 per trade, or 1+% fees in fund management every year, or tax on the returns). Your point about renting being a viable option is valid though, your numbers are just inflated.

vonseel 7y ago

Very good point even if only because I was too lazy to do the math in my head. $2000 is a lot for a sofa, and if I understand correctly is what people spend if they want a sofa for a long time and not just a cheap IKEA sofa to throw out after the dog / kids ruin it in 2 years. If someone’s spending this much on a sofa, I hope they expect to keep it 10 years and should be buying not making payments!

dsfyu404ed 7y ago
A $2000(!!!) sofa should last you a major phase of your life. If you have three newborns then it should take everything they can throw at it for the next ~20yr. If your kids just moved out for good it should be the last sofa you ever buy. That said, you don't get what you pay for, you never get more than you pay for. Not being an expert in evaluating sofa quality I'll take the cheap Ikea sofas that last half as long.