Invest your money - just not in shoes

On a whim - and a break from looking at holiday cookie recipes - today I searched for the word “Invest” on Pinterest.  One of the pins that popped up was a picture of a pair of Chanel ballet flats with the caption “if you’re looking to invest in a classic.”   

I promise you that I love shoes as much as the next gal, and I can amortize each wear of a $200 pair of jeans in about 8 seconds.  Even so, the first thing that crossed my mind when I saw that pin was: Chanel ballet flats are so NOT an investment.

A sound investment?

More precisely, shoes are not an investment.  Everyone remembers our fictional soul mate Carrie Bradshaw.  She spent nearly $40,000 on shoes, and ended up having to ask Mr. Big for the down payment on her apartment when her building went co-op.  

Carrie may not have ended up using the money Big gave her, but still . . . That! Right there! That’s the thing we're trying to avoid.

A financial investment, one that involves any of the cash you work so hard to earn, means putting money into something with the expectation of gain, usually over a long term.  Even more precisely, investing relates to savings and to deferring consumption.

Buying expensive shoes means putting money into something that is nearly guaranteed not to result in gain.

Shoes depreciate.

A new pair of Chanel flats, for example, is around $600.  Secondhand, they’ll run you between $250 and $400.  So, if you buy the shoes fresh off the showroom floor, about the best financial return you can hope to get is between 45 and 70%.  What’s more, the 70% return is reserved for a lightly worn pair, which means you’ll also get less of an emotional return while you own them.

I can’t think of a financial whiz worth her salt that would say a 30% loss on your money is a good financial strategy

On the other hand, if you put that $600 in an index fund that tracks the stock market and earns the historical average of almost 8%, you can earn $48 on the deal in one year. Compounded over seven years, it could grow to $1,050.

That $600 is also a good start on an emergency fund, an extra month’s student loan payment, the beginning of a down payment on an apartment, or seed money to open a Roth IRA.

You don't even have to save the money.  Your $600 can buy a month's worth of groceries, a subway pass, a round of drinks out with your friends, the season's new nail polish and you'll still have enough left to buy a great pair of shoes.

This, ladies, is a great first example of staying Ahead of PIM: don’t justify buying something  expensive by simply calling it an investment.

I’m all in favor of everyone treating herself to something fancy every once in a while.  But please, recognize it for what it is: a well-deserved splurge, not an investment.