40 INSTANT GRATIFICATION IS EXPENSIVE

Adam Smith writes about what type of expense contributes most to wealth: ‘The revenue of an individual may be spent either in things which are consumed immediately, or it can be spent on things more durable, which can therefore be accumulated’. Those immediately consumed are expensive to long-term wealth creation.

DEFINING IDEA…

One man’s trash is another man’s treasure

~ PROVERB

Like the idea of productive versus unproductive labour, money consumed immediately on indulgences does not add to wealth. The indulgences that Smith referred to were, ‘a sumptuous table’ and many servants. In modern times this could mean an overseas holiday that you couldn’t really afford, or another few inches on that flat-screen TV.

Spending money on assets, on the other hand, adds to your overall wealth. Smith makes the point that the expensive assets of the rich soon find their way into the hands of others as the wealthy become bored and sell them off, thus offering the not-so flush the opportunity to purchase items that would previously be out of reach. Apparently, ‘The marriage-bed of James the First was the ornament at an alehouse at Dunfermline.’

Today, we have eBay, a global marketplace that allows you to buy anything from a Vespa to a piece of toast with the grilled cheese depictions of the Virgin Mary! In 2004, the said piece of ten-year-old toast sold on eBay for $28,000. Although considering the cost and age of the item, it was probably not ‘consumed immediately’. Certainly, the Lord (and cheese) moves in mysterious ways!

eBay was created in 1995 by Pierre Omidyar, an avid internet enthusiast, who created an auction site to help his new wife find Pez™ dispensers to add to her collection! To test his invention, he offered a broken laser pointer, which sold for $14.83. Surprised, Omidyar contacted the winning bidder to ensure he realised the item was broken. The buyer answered, ‘I’m a collector of broken laser pointers.’ In that moment, Omidyar knew he was on to something.

He was right! eBay now has a global presence in 39 markets, helping 233 million registered users buy just about anything. Apparently a woman’s handbag sells every three seconds, while former UK Prime Minister Lady Thatcher’s handbag sold for £103,000! The most expensive item ever sold was a Gulf Stream Jet for a cool $4.9 million. In 2007, the value of sold items on eBay was almost $60 billion.

Smith reminds us that, ‘The expense too, which is laid out in durable commodities is favourable, not only to accumulation, but to frugality.’ In other words, if you are sensible about your purchases and buy durable items that will retain some value, then if things become financially sticky you can always sell them without anyone ever knowing!

HERE’S AN IDEA FOR YOU…

According to a survey conducted by ACNielsen International Research, more than 724,000 Americans use eBay as their primary or secondary source of income. In the UK, the figure is estimated to be in excess of 178,000. So, instead of hoarding stuff up in your attic that you never use, stick it on eBay and make some money from it! Recycle and repair items instead of buying new all the time. It’s better for the environment and adds a little extra cash to your pocket.