August 27, 2007

Your Stuff Isn't Worth What You Think It Is

SO I WAS SURFING around the Internet tonight and I stumbled across the story of a Kansas City couple who have admitted to the world they are in dire need of a financial makeover. They get one courtesy of The Kansas City Star. Interestingly enough, though, the reporter on the story lets go unchallenged one particular datum from their financial health-chart. See if you can guess which one it is:

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ASSETS:
Cash and cash equivalents, $4,615;
retirement savings, $16,220;
cars, $10,000;
home, $142,040;
personal property, $50,000.
TOTAL: $222,875

LIABILITIES:
Credit cards, $62,410;
student loans (currently in deference), $45,000;
mortgage, $132,015.
TOTAL: $239,425

NET WORTH: ($16,550)

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I'm sure you've guessed it, because it's so blooming obvious -- that ridiculous $50,000 number for personal property. Nor am I the only one to question this: over at Boston Gal's Open Wallet, where I found the story, Boston Gal herself also raises an eyebrow:

Just like the last Kansas Star Money Makeover couple, this one seems to have a large dollar figure for "personal property" which may not be very realistic. Either that or giving myself just $5,000 for everything I own is vastly under valuing my personal property...

I for one doubt that Boston Gal is undervaluing her own personal property, just because personal property has a way of depreciating far more quickly than one might otherwise hope.

I myself only value my own personal property at $1,000. In part, this is because I don't have a lot of stuff, but it's also because the stuff I do have has depreciated to the point of no return. For instance, the computer desk on which I'm writing has a broken drawer and a whole bunch of scratches from moving. I bought it new at $200; if I ever get rid of it, it's free for the taking to anyone who will just pick the damn thing up.

I also have a nice leather recliner in my apartment bought new at $500 or so. I'd be lucky to get $75 for it at this point. The davenport/futon, which I bought for $300 new, is probably worth about $20. (It's been used). My swell new television, which I bought a while back, also for $300, is also probably worth about $50. My books and CD collection are great but their resale value is practically nil. You see where I'm going with this -- if I was lucky, I could get $1,000 for the contents of my apartment.

So to be perfectly blunt, if this family has $50,000 in personal property, I'm the Queen of England. And about the only way they could get $50,000 for their personal property is if Gene Wilder and Richard Pryor suddenly stumbled upon the scene with a zany, madcap plan to evade the federal authorities and get out of Kansas City. Something like this:

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GROVER: That's a bad sofa! Give you $700 for it!
MAN: It's yours!
GROVER: Pay the man.
GEORGE: What!
GROVER: Pay the man!
GROVER: Give you $300 for the coffee table!
MAN: Sold!
GROVER: Pay the man!
GEORGE: These plans of yours are getting awfully expensive!
MAN: I've got a television here if you want it.
GEORGE: No, we're fine!
MAN: You want this Cuisinart?
GEORGE: NOTHING!
MAN: Can't blame a man for trying!

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So, knowing nothing other than the numbers presented above, it seems to me it would make sense to adjust the family's personal property number significantly downward. $10,000 would seem generous, and $5,000 is probably more on target. That also makes their financial picture far more dire -- they're now $56,000 or $61,000 in the hole, as opposed to $16,000 -- but it is also far more accurate.

And how these folks managed to ring up $62,000 in credit card debt is beyond belief. Lots of families have credit card debt these days but you would think after hitting a certain number the alarm bells would have gone off and they'd have adjusted their spending accordingly. Hopefully they will be able to adjust now -- because those student loans will come due eventually, and you can NEVER get rid of those except through paying them off.

That aside, though, the whole "personal property" number is a vague and imprecise one. So if you do include it in your financial calculations, the number should be an extremely low one, unless you've got a whole bunch of antique furniture around the place. After all, in the event you DO have to hock everything, you might as well get a nice surprise on the upside.

Posted by Benjamin Kepple at August 27, 2007 09:52 PM | TrackBack
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