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Old 11-16-2019, 06:41 PM   #1
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Net worth....Boat Budget

Passagemaker has an end page editorial that cites a widely held rule of thumb that a person should spend around 5% of their net worth on a boat. The author's main point is that he doesn't agree with that rule of thumb but it still got me thinking.

In my mind I've been thinking that the right amount to budget is about the same as I'd spend on a house - which is a good bit more than 5% of my net worth.

So what do people think? Is there a good range that people should budget for? I don't want to end up buying a boat that is way more than I can afford....
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Old 11-16-2019, 07:06 PM   #2
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Passagemaker has an end page editorial that cites a widely held rule of thumb that a person should spend around 5% of their net worth on a boat. The author's main point is that he doesn't agree with that rule of thumb but it still got me thinking.

In my mind I've been thinking that the right amount to budget is about the same as I'd spend on a house - which is a good bit more than 5% of my net worth.

So what do people think? Is there a good range that people should budget for? I don't want to end up buying a boat that is way more than I can afford....
Interesting concept, but in my opinion completely false and misleading.

The figure that I hear bounced around is to figure in around 10% of the boats value per year for maintenance. That is even misleading.

When budgeting for a boat add up the costs before you buy. If you finance the boat then thats the payment. Add to that slip fees and insurance.

On top of that guess high on the maintenance. For a 50’ boat figure on several thousand dollars a year. Yes it may come out to be less and you’ll be happy but it will probably average several thousand a year.

The fastest way to find yourself in a pickle is to buy a boat that you might be able to afford to buy, but cannot afford to maintain.

The bank, and the boatyard, and the marina, and the insurance company do not care about net worth. They care about cash money.

One could have a very high net worth and not have the liquidity to own a boat.

Conversely one could have a low net worth, and a high income and be able to easily afford a boat.
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Old 11-16-2019, 07:43 PM   #3
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Boats are different than homes so you can't look at them the same way. A home will appreciate at 2-4% annually (US wide averages, YMMV), boats will depreciate at about 5% annually.

Some 20 years ago, we bought a full time live aboard cruiser and sold our house. The boat represented a then 15% of our net worth. We sold it later for much less than we paid for it. Prior and subsequent boats were probably in the 7-10% range of net worth.

A few years later we bought a house in Newport Beach, Ca, one of the highest home value places in the country, and paid 35% of our then net worth. We sold it about ten years later immediately after the great recession for about what we paid for it.

In my much earlier years I bought houses in the Houston area for about 100% or more of our net worth, which was about nil- we were young and building a career and family and our net worth was mostly the equity in our home.

So it all varies, in houses as well as boats, by a lot. There are no meaningful rules for homes or boats.

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Old 11-16-2019, 08:05 PM   #4
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Passagemaker has an end page editorial that cites a widely held rule of thumb that a person should spend around 5% of their net worth on a boat. The author's main point is that he doesn't agree with that rule of thumb but it still got me thinking.

In my mind I've been thinking that the right amount to budget is about the same as I'd spend on a house - which is a good bit more than 5% of my net worth.

So what do people think? Is there a good range that people should budget for? I don't want to end up buying a boat that is way more than I can afford....
I think trying to set a percentage of net worth to spend on a boat or a house is a fool's mission. It's more about what is left over and is it enough and looking at one's total picture. It's more about what you can afford to be without for other uses. To us, it's how much do we need for other things, how much do we want as a safety factor and then what does that give us to spend anyway we want.
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Old 11-16-2019, 08:38 PM   #5
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Live dangerously spend it all lol hmmm i prob spent a whole lot more than I should have, I was really 2-3 years away from buying a boat comfortably. And because of that i would greatly advise against buying a boat with just about all your money, or anywhere near all your money for that matter. In 3 years I would have been paying other people to work on my boat, now that I jumped the gun without much reserves and more knowledge than I wish I had I get to do pretty much a full remodel myself when I’m off work. I believe setting a percentage like that is a little outdated in this day and age, more and more of the younger generations are going out and exploring the world in boats. Maany of them still have full time jobs while they are cruising. Setting a percentage is only useful for someone who is retired and on a set allowance for however long they think they will continue cruising.
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Old 11-16-2019, 08:47 PM   #6
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I don't believe in borrowing money to finance toys or "good times." But it is your life.
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Old 11-16-2019, 08:50 PM   #7
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Yea I do agree with that last statement at least. Buying things like boats on finance doesn’t sound like a good idea. I’m fine with spending it all but I won’t spend what I don’t have lol
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Old 11-16-2019, 08:56 PM   #8
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I don't believe in borrowing money to finance toys or "good times." But it is your life.
I hate to tell you but for most people if they didn't borrow money for toys or good times , they would have neither for their whole life.
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Old 11-16-2019, 09:11 PM   #9
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I don't believe in borrowing money to finance toys or "good times." But it is your life.
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Old 11-16-2019, 09:27 PM   #10
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The best thing about boats is that well built ones tend to list a very long time if they were taken care of. And there is a boat for almost any financial situation, and yes even long range trawlers can be had for dirt cheap prices if you look hard enough. I would love a dashew boat but the reality is what I can afford is a no name 1970s one off trawler that hasn’t been taken care off. The reality is If you cannot afford to buy the boat you probably cannot afford the maintenance and all the other things that comes along with it. Not that I’m complaining to much. People living above there means makes for some pretty sweet deals for people that know how to turn a wrench. Just like a house just being able to float the note so to speak does not mean you can afford what you are looking at. It is very easy to double the monthly cost of a boat over just a monthly loan payment. when you take into account insurance, a dock to put it in, monthly cleaning of the hull if your using it, maintenance, paint every few years, electronics upgrades, repair bills from when stuff brakes, all these things are constants that come along with your monthly note. And let’s be real some days you just need $10-20,000 in reserve for when big systems brake. If I absolutely had to buy a boat on loan it would only be if I were in the market for a new place to live full time and decided on a boat. And unlike a house which I would be looking at something around 3 times my yearly income I would probably set my price at no higher than 1-1.5 times my yearly income.
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Old 11-16-2019, 10:38 PM   #11
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Formulas and percentages of net worth to determine how much to spend on a boat? That's a good one. Hope it works out.

You should know if you can afford a boat or not, how much to spend, what to save for maintenance before buying. Do the math with your household cash flow.

With experience, one knows what is affordable and what is not. Too many people getting into boating with no experience, buying what the formula, magazine article or broker suggests.

If you've had several boats, hopefully starting small and working up over the years, you will know firsthand what it will coat to keep a boat. You will have decided what you can and can not do yourself, what you will hire out etc, what it cost to have things done and what maintenance is required.

With people getting into boating later in life with little experience, it's a difficult decision process figuring a budget for the acquicision, moorage and maintenance of the boat. And most of the time buying unnecessary equipment or incorrect ones for the application.

Most new buyers rely on brokers to guide them. If they are fortunate to find an experienced broker, they are in good hands. Most brokers I've dealt with were inexperienced, got into boat sales as a retirement job or part timers doing it so they can say they are.

There are a few experienced boating consultants out there, who are not brokers selling boats. They spend time with the clients focusing on their needs and type of boating planned. Come up with budgets, types of boats to look at and guide them along on their quest for the ideal boat. The consultant oversees the showings and points out features or areas that may be problematic. Some consultants are also boat handling instructors and give instruction to the new boater to satisfy insurance.

They assist the new owner during equipment installs and refits, after purchase to insure proper work. Often trip planning for the first few outings are also fine tuned by the consultant.

These consultants work by the hour.

They are usually hired by inexperienced boaters planning to purchase large 50' plus yachts. But sometimes by prudent buyers of boats less than 50'

I retired from being a boating consultant a few years ago. I saved many new boaters from headaches, heartburn and unnecessary spending. And buying the wrong boat.
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Old 11-17-2019, 07:15 AM   #12
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Personally I never thought about the concept of % of net worth when purchasing either a house or boat. I think that's because it doesn't make intuitive sense to me.
So much depends on where you are in your life cycle and where are you vs your goals... accumulating wealth to meet an objective - already met or ahead of your goal.
If anyone has amassed 2-3X their financial goals then 5% seems ridiculous. Very different in the " just getting started" with life and building net worth stage.
The other point not mentioned is both a house and boat purchase should increase net worth certainly not by the same % of purchase price but by their liquidation price.
Most financial planners won't even include a house in the calcs as you always need a place to live but again depends on what you have vs what you need. The difference can usually be realized if/when needed.
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Old 11-17-2019, 09:14 AM   #13
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Old 11-17-2019, 10:51 AM   #14
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Old 11-17-2019, 11:24 AM   #15
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5% of net worth - What fun would that be? I definitely have issues according to that rule with choices I am about to make gleefully. BUT they are choices fully backed by my financial advisor who just finished a 30 page retirement planning document to give me a go/no-go on when my wife and I gain financial independence (FIRE = Financial Independence Retire Early) and how much we can spend on a cruising boat. Essentially the boats we are looking at are approximately valued at the cost of our house which will be sold in the near future to follow a dream. Definitely more than 5%...more like 17%. I have heard to budget 8% for annual maintenance and running expenses...I have heard 10% and I have heard $1000/ft. I am budgeting higher even knowing I am a learned do-it-yourselfer. Even took a Mack Boring class when I bought an inboard Albin with a diesel. Every situation is different - Be realistic but also be well INFORMED.
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Old 11-17-2019, 01:04 PM   #16
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Old 11-17-2019, 01:14 PM   #17
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Old 11-17-2019, 01:26 PM   #18
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Old 11-17-2019, 03:10 PM   #19
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I think the percentage could go up as you have your basics taken care of. Example is that you have your retirement expenses easily covered under the 4% rule. Then you might consider the rest to be part of the boat budget. So for me we have a monthly of about 5K so I need 60K or about 1.5M just for basics. Assuming house is owned and no other planned expenses then boat budget could be some of the excess Let’s say I have 1M excess the maybe 500K boat with 35-50k per year for maintaining and expenses. Own for 10 years with 50% residual value would mean that I was happy with a 750k boat expense out of a 2.5M net worth (30%). However I would have room for a zoom per tent boat budget at a nw of 1.5M.
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Old 11-17-2019, 05:27 PM   #20
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If I had not financed part of my boat when I was employed, I never would have bought it and my life would be VERY different than it is now. Fortunately I was able to pay it off early (as planned) before retiring.

My point is that while a strict "Do not finance toys!" rule might work for some fortunate folks, it does not work for all.

To each, his own.
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