Under-Depreciating Assets

While many assets depreciate, some provide disproportionately good value.

Reflection · 1482 words · 8 min read · 225 views

In spring 2012, with my 2011 tax return in hand, I was in the market for a new mountain bike. Bikes costed much less a decade ago, so I budgeted three thousands dollars (all amounts CAD) for a mid- to high-end full-suspension bike. Prior to that, I had owned a hardtail, and a basic full-suspension Trek Fuel, albeit with V-brakes instead of better-performing disc brakes. The new bike was to be both an investment and an indulgence: a means of taking mountain biking more seriously while also providing a major upgrade over my previous bikes.

Budgets, of course, are hopeless against desire. The desirable trend in mountain biking at the time was bigger wheels—29 inches instead of 26—and longer travel. At a few local bike shops, I demoed bikes at my price point but found nothing I could get excited about. In upsell territory, I found a Santa Cruz Tallboy LT (Long Travel), for $3649. It was one of the first long-travel 29ers (140mm/135mm): if not ahead of its time, it was certainly on the cutting edge. I blew well over my budget on the bike and associated accessories: clipless pedals, wider handlebars (730 mm, which seemed absurdly wide at the time but are now laughably narrow), and upgraded hydraulic disc brakes (Shimano instead of Sram).

Then I rode the bike. A lot: day trips to Kananaskis, Canmore, and Banff; multi-day trips to BC: Fernie, Golden, Revelstoke, Rossland, and Victoria; and internationally too: Bellingham, Washington, and Sedona, Arizona. My fitness and ability ramped up. Many trails required walking certain sections at first, yet continued attempts resulted in more riding and less walking. Playing tourist in distant places—most of my previous vacationing—was nowhere near as fun as bike trips.

The utility gained from my Tallboy was tremendous. The physical fitness, the camaraderie, and the exploration of wild places, all served to eventually steer (ahem) me away from city life. My investment in the bike, it seemed, was justified.

This philosophy, of buying nicer-than-needed items to grow into, applied elsewhere. Another year’s tax return went to buying a bunch of camera gear. Looking back, those dollars were probably justifiable as well (I have made a few dollars through my photography, but not quite enough to cover my total gear costs). The same could be said for computers too: my long-time computer geeketry eventually turned into my career.

Such assets—toys in a lots of cases—depreciate sharply in time. It can be tempting to bemoan the precipitous value curves of such physical assets. (I’m looking at you, Ruby; my transportation costs were probably double what they could have been.) Was it myopic to purchase so many quickly depreciating, rapidly obsoleting physical assets? Or would my twenties have been far too boring had I, say, more dedicatedly adhered to the penny-pinching doctrine espoused by the early retirement movement?

Time thus demonstrates the utility of an asset. The monetary value and the lifestyle improvements afforded by owning certain depreciating assets like outdoor gear can be in tension, both pulling in opposing directions.

Occasionally, you can get screaming deals on expensive assets. Once, I bought a used ski box for $150 in Calgary, after having dialed my parameters into Kijiji. If I didn’t jump on it, the next person would have. Another time, in Seattle, I scored a lightly used rooftop bike tray (RockyMounts BrassKnuckles) at the REI garage sale for around $40; current retail price: $329.99.

Today, however, I would like to discuss a different kind of asset. In the last decade or so, I have found certain assets or services that, unlike my mountain bike, cameras, and computers, either depreciated unexpectedly slowly, or provided cost-savings far beyond what their price tags initially suggested. I will call these “under-depreciating assets.” Let’s now have a look at some.

Prepaid Phone Plans

Since October 2016, my monthly phone bill has averaged $20.94. (For a more detailed look into how I managed this, see How to Minimize Your Phone Bill.) Over a period of six years, the savings of this approach compared to a plan of $50/month are $2,092.32 ((50 - 20.94) × 12 × 6). Invest that money, and it’s worth even more with compound interest. With this approach, my monthly data usually does not exceed about 250 MB. Consider how much less glued to my phone I am compared to having a fatter data plan.

Home Gym Equipment

In high school, I paid for a monthly gym membership, around $60/month. At university and in downtown Calgary, I got free gym memberships. In all cases, I got good value for my dollar (or lack thereof). Now without a free gym, I have opted not to purchase a membership at the local gym. Instead, a yoga mat, a few dumbbells, and a pull-up bar provide enough equipment for my once- or twice-weekly weight workouts. These cost less than a single month at a gym and will provide benefit for years to come. As space permits, I’d like nothing more than to augment this setup with either a bench press or squat rack.

Personal Blender

After trying a friend’s Magic Bullet personal blender in undergrad, I bought the fancier Cuisinart version for around $80 (much better built). I use this blender to make smoothies almost every day in summer: milk/juice, frozen fruit, yogurt. Experiment with the proportions until you get the consistency right. After hiking, running, biking, or climbing on a hot day, it is too easy to grab some kind of cold drink on the drive back—skip that and make your own for a fraction of the cost. Relatedly, I’ve switched to buying only plain yogurt. Use it in a smoothie—add maple syrup for sweetening—on potatoes instead of buying sour cream, or add some to your scrambled eggs for extra protein.

Old, Used Bikes

In addition to my aforementioned pricey mountain bike, I have also run a second commuter bike for years. In Calgary, my city bike was an old, rigid Specialized Rockhopper. Parts were cheap—I replaced the chain, cassette, and chainring for under $50. Anything fancier would have gotten destroyed in the harsh winter-riding conditions, requiring far pricier repairs. Now, in Revelstoke, I ride a similar bike (a vintage Peugot) that is brilliant for running errands in town and going on road rides. Furthermore, old bikes are an excellent way to learn how to wrench. Scratching a stanchion tube on your multi-thousand-dollar enduro rig is heartbreaking, so learn your trade on a junker where there is little cost of failure.

Hair Trimmer

In June 2016, I bought a Wahl home haircutting kit for $23.87. I haven’t paid for a haircut since. Suppose a typical men’s haircut costs $30, and you need one every six weeks. Rounding down, let’s say you need eight a year. Six years of such haircuts comes to $1440 (6 × 8 × 30). It takes about an hour to cut my own hair now—hardly longer than going to a barber, and there is no more worrying about not being able to wear a hat in winter after a haircut when it is snowing.

Sewing Kit

That sewing saves you money may sound obvious to the point of being daft, but I only learned to sew a few years ago. What empowerment! My bike gloves have stitching on 8/10 fingers and have years of life left. I’ve now sewn gloves, shoes (my last pair of clipless bike shoes lasted fifteen years), pant pockets, a bathing suit, and a comforter, among other items. Buy an outdoor-rated thread like polyester for gear repairs as regular thread breaks too easily—I made a lens-cap strap out of such thread, thinking it would snap on the first thing it caught, but it has been solid for months now. Hit up YouTube or someone experienced to learn the basics.

Too many digital services have recently gone to monthly subscription models. Somehow a “low” monthly price is seen as more palatable than a larger upfront payment; apparently, cell-phone carriers knew this all along. My monthly digital-service expenses include my phone (~$20.94), Apple Music ($10.49), Adobe Photoshop ($13.64), and Amazon Web Services ($2.49). This comes to $47.56 monthly or $570.72 annually, which will need be paid every year as long as I live. This is on the low side too: as mentioned above, many phone plans alone are $50/month. Notably absent from my monthly subscriptions is any kind of TV-streaming service. (A nice-to-have would be a satellite SOS/communications device, though I make do with a subscription-free personal locator beacon for now.)

In an age where everything is competing to empty our wallets, it is refreshing to find products or services that provide unusually high value for their price. Even if they were guaranteed to provide the utility promised, high-end toys like mountain bikes can nonetheless come with their share of buyer’s remorse. How much money did I just spend? The six items discussed in this article generated zero such contrition—more a saver’s delight—and demonstrate that modestly priced assets or services can on occasion offer exceptional long-term savings.

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