Friday, January 8, 2016

Its Raining Cats & Dogs

Ahh I can already envision it. The idyllic suburban home with the large fenced in yard perfect for your little furry friends.  The pup playfully barks at the neighborhood kids while the cat sits quietly perched in the front window.  It’s what many Americans dream of.  Should this be your dream?  The answer is most likely not.  At least not until you have more financial assets under your belt.

I already knew as I began to type this article it will be contentious once it's published. Pets are considered family members by many people with emotional attachments to boot. Yet the sad fact is your pet is probably doing more damage to your finances and portfolio than the pictures you post on Instagram portray. I mean who wants to think of the cute new puppy as a ravenous gold digger? Yet Fido is probably digging that hole in the backyard to find your buried stash so he can get the new chew toy he's been eyeing at the local pet store.  





Let’s take a deeper look at why pet ownership comes in at #5 on my list of reasons "Why You're Poor".


The ASPCA lists the average cost for a few pet types.  Obviously there will be people with actual costs that differ, but for the sake of this article these are the numbers we will use. What they don’t list is the cost of acquiring a pet which can be substantial depending on what type of animal you choose so we will adjust for that in our example. Also most people with pets have more than 1 as evidenced by data from AVMA. So we will use 2 pets(1 dog and 1 cat) for the average household in our example.  Here is what you can expect



Medium Dog
Cat
Cost Per Year
Year 1 - Incl Pet Purchase
$2,080
$1,335
$3,415
Year 2
$695
$670
$1,365
Year 3
$695
$670
$1,365
Year 4
$695
$670
$1,365
Year 5
$695
$670
$1,365
Total
$4,860
$4,015
$8,875


Wow that added up quickly over 5 years. But your pet is likely to live 8-12 years so keep that in mind. But regular readers will know that you have forfeited the opportunity cost of earning money for the sake of your family pet. So pull up the financial calculator we shall.  


If we invested the money starting in year one earning a 7.5% rate of return making the yearly additions you would have $12,963 in cash to your name after 5 years. If we project this out for ten years your two pets actually cost you $26,808. Yikes!  But of course the original pets sadly passed after 10 years and you replaced them both with two more pets forfeiting another $26,808 over twenty years total. After it’s all said and done you voluntarily forfeited $53,616 over 20 years for your little companion. Coincidentally that is very close to the average yearly pay of an American worker. To me that sounds like you gave yourself another year of involuntary work.  I bet you never would have thought that over 20 years of having a couple pets you spent 1 full year working just to afford them. If you make even less money you will be forfeiting substantially more years of your freedom to have a pet. So when you’re thinking of buying your new furry companion please keep these numbers in mind. Also I'd implore you to set aside the money towards a child's college education fund if you had any.


If you make really good money and have a considerable nest egg and passive income covering most if not all of your expenses then by all means have a pet and enjoy it.


But let’s say you are one of many Americans with little to no savings and a below average job earning 40,000/yr. After taxes let us assume this average person is left with 30,000 for the year. Rent or mortgage takes up another $800/mth leaving $20,400 for the year to spend on food and other necessities. If this person decides one year they’d like the two pets in our example they’d be consuming 16.7% of their  remaining discretionary income. Each year after the pets would consume 6.7% of income. Even if we opt for just the dog this person still sees their remaining discretionary income consumed to the tune of 10.2% and 3.4% annually. Compare that to a person who takes home $100,000/yr. The percentage of income taken up by the pets would be comparatively lower. So while you may think since others in your neighborhood have a pet you should have one too. That’s just not the case.


It always baffled me when people struggling financially would have an expensive pet such as dogs or cats. Sometimes up to 3-4 pets which is astounding.  What most people fail to realize is that becoming rich isn’t done overnight. If you work hard, save, invest, and spend money wisely you could start to breath a little easier over time.  This is true for anyone outside of those living in the poverty level where there is a struggle to just get food on the table.  Understandably the pet provides happiness to just about every owner. But generally you could get the same benefits from a good friend or family member through normal conversation and interaction all while costing you nothing!

Now this doesn’t mean you should give up the idea of ever having a pet. Just be sure to get your financial house in order first before making the commitment.  Remember that pets are optional and require a huge commitment.  And if you decide to get one anyway understand that you are sacrificing part of your financial well being in return.

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