James d. Gwartney

Video:
Strategies for Paying Down Debts
What if you do not have the funds to pay off your credit card bill? Then take out a bank
loan—the interest rate will be lower than your credit card rate—and, based on the budgeting
principles presented in Element 3, develop a plan to pay off the loan as quickly as possible. Of
course, you also need to make sure that you do not run up any other credit card debt.
In addition to avoiding credit card debt or paying it off immediately, you can stretch
your money by buying used items when they will serve you almost as well as new ones. The
problem with buying things new is that they depreciate or decline in value almost immediately.
Thus, while new items can be purchased, they cannot be owned as new items for long.
Almost as soon as an item is purchased, it becomes “used” in terms of market value.
Buying things that are used—or, in today’s parlance, pre-owned—can reap substantial savings.
Consider the cost of purchasing a new automobile compared with a used one. For example, if
you buy a brand-new Toyota for about €30,000 (in 2019, this was the average price for
Toyotas, which were the most popular car in Kiev), and trade it in after one year, you will
receive about €18,000, or €12,000 less than you paid for it. If you drove the car twenty
thousand kilometers, then your depreciation
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 cost—the cost to you of the decline in the car’s
value—is 60 cents per kilometer.

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But instead of buying a new car, you can buy one that is a year old. You might pay
about €20,000, or €10,000 less than the cost of a new car. This consists of the €18,000 the
previous owner got for selling it plus €2,000 in “transaction costs” such as ads, sales,
commissions, or whatever.
Given how long cars last if you take care of them, you should easily be able to get
excellent service from your used Toyota for eight years, at which time you can probably sell it
for about €10,000. Assuming that you drove 20,000 kilometers a year, your depreciation cost
per kilometer will be €10,000/160,000 kilometers, or just over 6 cents. This is 54 cents per
kilometer less than the cost of driving a new car every year. Staying with the assumption that
you drive 20,000 kilometers a year, the depreciation saving from the used car is nearly eleven
thousand euros every year. Of course your repair bills may be higher after the car is a few
years old, but the savings will still be enormous from sacrificing that new car smell.
Many other items are just as functional used as new and often much less expensive.
Clothes, furniture, appliances, refurbished phones, and toys come immediately to mind. You
may want to spend some time at outdoor markets and secondhand stores. The “thrill of the
hunt” is, in itself, a recreational activity—and is free! Given the value of your time, however,
there are other ways to find used items. On-line apps provide alternatives that reduce time
spent and transaction costs. In a few “touches,” you can find items that are both in excellent
condition and priced significantly below retail. Of course, there are some cases when buying
new is economical. We are merely encouraging you to consider the potential savings that can
often be derived from used purchases without giving up much in terms of consumer
satisfaction. Look for opportunities to get more value from your money.
Young people worldwide are exploring the possibilities of a post-consumerist culture
with green, minimalist, or zero-waste living. Resources such as iFixit, RREUSE.org,
makeresourcescount.eu, and many other YouTube channels promote repairing rather than
trashing useful objects, and living a fun and happy life within your means. A web search for
“frugal green living” will lead to many practical resources and other like-minded individuals to
provide support. Cities across the globe have begun to promote the sharing economy.
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