What I Wish I Knew Before I Started Collecting, Pt. 1: Budgeting
Watch collecting at the onset is a storm of information, emotions, and bad decisions. It's more common than not to see enthusiasts dive headfirst into ardent acquisition, instead of careful curation, and end up making mistakes. While the first few months and years in watch collecting is a truly exciting time, enthusiasts can mitigate their risk of regret by taking advice from those who've walked down the path before and here is some of mine.
This will be the first part to a three-part series on lessons I learned in three major categories: budgeting, purchasing, and temptation. This post will cover my approach to budgeting and one major thing I wish I had done differently. I respect that this approach may only apply to personalities like mine 🙂.
1. Understand that all watches over $30 are a luxury
Almost 93% of Americans have a phone, which means the vast majority of Americans have access to the time. Watches are a great medium for self-expression and an instrument to appreciate the intersection of deliberate design and creative craftsmanship, but unless you are buying a watch to hike in the woods without cell service, there is no argument for 'I must buy a watch'. When collectors treat watches as the luxury goods they are, they'll begin to prioritize their financial goals accordingly - save enough for emergencies, max out retirement accounts, invest in securities and real assets, and then participate in hobbies such as collecting watches.
2. Treat watches that are stable in value as collectibles
Being the fiscally responsible person you are, you track your net worth as a sum of your assets and liabilities. You know how much credit card debt you hold, how much money is in your bank accounts, and how much you've distributed into different classes (it's okay if you don't; I recommend Personal Capital to manage all your finances). These different classes could include stocks, bonds, real estate, cryptocurrencies, etc. If you are watch collecting and haven't done so already, create a new class for collectibles. Financial advisors (which I am not) recommend having no more than 5% of your net worth here. Collectibles are loosely defined as items which roughly retain their sale price, and this includes jewelry, watches, art, and fine wine, all of which can act as a hedge against inflation. Tying it altogether, if you are a millionaire who only collects watches, the worth of your collectibles collection should not exceed $50,000. If you hold the median net worth of a U.S. household, which is $121,760, the value of your collectibles collection should not exceed $6,088. Lastly, remember the advice of the previous section, focus on your other financial goals before allowing yourself to spend 5% of your net worth on collectible watches.
3. Embrace buying collectible watches as a life-long journey and budget accordingly
A huge mistake I made was looking at the difference between 5% of my net worth vs. how much total I had accrued in watches. I kept rationalizing, "Wow I still haven't hit my ceiling" and I ended up purchasing 10 watches in 8 months. Now I am almost at the 5% mark, which means if I pass it and want to buy a $10,000 Rolex Yachtmaster 40 16622, I would need to save up another $200,000. Would I rather have the Yachtmaster than 2 watches that add up to $10k from my collection? Maybe. The lesson here is that, depending on when you get into the watch collecting game, you could have decades left to procure pieces. Don’t make the mistake of front-loading all your purchases. Instead of focusing on the target 5% of your net worth, I would think about how much budget per year you can allocate to watch buying. First, decide on how long you plan on acquiring timepieces. Next, identify your current net worth and how much you save per year, and therefore, your resulting net worth at the end of your watch collecting journey. It is an imperfect approximation, but taking 5% of that final net worth and dividing by 30 will give you your yearly budget. Below is an example:
An enthusiast has a net worth of $250,000, is saving $20,000 a year, and plans on collecting for 30 years.
Starting Net Worth = $250,000
Yearly Accrual of Net Worth = $20,000
Duration of collecting = 30 years
Net worth by the end = $250,000 + $20,000 * 30 = $850,000
Yearly budget for watches = $850,000 * 5% / 30 = $1417
Given these parameters, if a collector wants to buy a Rolex Datejust 41 at $7100, he or she will front-load 5 years of collecting within one purchase. In other words, sometime during this collector's journey, he or she will be on a watch-buying hiatus.
4. Consider watches that depreciate heavily as discretionary spending
Thanks to @KristianG, @kelechinobi, and @hbein2022 for helping me notice my oversight on only speaking to collectibles
Points 2 and 3 do not apply to watches which drop in value. For the example below, assume net worth does not change over time. Say 5% of your net worth is $2000. You buy a Tissot worth $2000 and it's been shown to depreciate 50% over the first 3 years, so 3 years later your watch collection is worth $1000. You would not consider your allocation to be $1000 and go out and buy another $1000 watch. However, imagine 5% of your net worth is $10,000 and you buy a Rolex GMT-Master II at MSRP. If the model doubles in price in the next 5 years, your allocation will become 10% of your net worth, so you are over-indexed and should not buy another collectible watch.
A useful framework for budgeting for watches which lose value quickly is the 50/30/20 recommendation (which won't apply to everyone, especially those with low income and high living costs). 50% of your take-home goes towards needs, 20% goes towards savings, and 30% goes towards wants. It will be up to you to figure out what brings you happiness and allot a portion of that 30% towards watches accordingly.
5. Don't ignore maintenance and insurance costs
Maintenance and insurance costs were not things I considered when I started buying watches. As a rule of thumb, if it would hurt financially to lose a watch, you may want to look into insurance. The yearly costs for that are about 1-2% of the cost to replace that watch. Service for in-house movements is also no joke - contrived example, but if you have 10 Tudors that cost an average of $300 to service, and you service them once very 10 years, that is $300 year (or worse, $3000 when you service them all at once. That's almost the cost of a new Tudor).
TL;DR
- Watches are a luxury and should never be placed above your other financial goals
- Collectibles, including watches, should make up no more than 5% of your net worth
- You can calculate a rough yearly collectibles budget with your current net worth, yearly savings, and the number of years you wish to buy watches for
- Watch collecting is an exercise in delayed gratification; buying a watch outside of your yearly budget today means taking a break later. This will be especially painful if the watch you buy today is an impulse buy, and the watch later is a grail
- Non-collectibles, or watches that lose their value, should be considered discretionary spending. A good rule of thumb is to assign 30% of your take-home to expenses that bring you pleasure, and depending on how much you love watches, that could range from 1% - 30%
- Account for maintenance and insurance costs
- Today's topic was budgeting, next two posts will be about avoiding temptation and the purchasing process
- Account for maintenance and insurance costs
- Non-collectibles, or watches that lose their value, should be considered discretionary spending. A good rule of thumb is to assign 30% of your take-home to expenses that bring you pleasure, and depending on how much you love watches, that could range from 1% - 30%
- Watch collecting is an exercise in delayed gratification; buying a watch outside of your yearly budget today means taking a break later. This will be especially painful if the watch you buy today is an impulse buy, and the watch later is a grail
- You can calculate a rough yearly collectibles budget with your current net worth, yearly savings, and the number of years you wish to buy watches for
- Collectibles, including watches, should make up no more than 5% of your net worth
Building a collection of different case materials and dial techniques
You’re no fun!
You’re no fun!
Haha, like I said, this might only apply for people like me… overthinkers
Haha, like I said, this might only apply for people like me… overthinkers
I’ve thought long and hard about it, and my Seiko’s are not collectibles. I’m not counting them towards my asset holdings.
I'm not an over thinker, but I essentially reached your point two conclusion after some thought.
I'm a pretty average guy, with a relatively average income. I realized that owning a luxury watch equalling more than 5% of my annual income was likely a bad idea. I actually stick to ~2.5% as a line I won't cross.
My reasoning is different from yours though. I have come to the conclusion that to actually "afford" a luxury/extra, I need to be able to afford replace it on short notice if anything happens to it. That way I'm not worried about it, or overly protective of it.
I’ve thought long and hard about it, and my Seiko’s are not collectibles. I’m not counting them towards my asset holdings.
Anything you can resell for a similar price when you choose to sell it, either tomorrow or a few decades from now would fit in that list. It is hard to tell with Seiko.
I'm not an over thinker, but I essentially reached your point two conclusion after some thought.
I'm a pretty average guy, with a relatively average income. I realized that owning a luxury watch equalling more than 5% of my annual income was likely a bad idea. I actually stick to ~2.5% as a line I won't cross.
My reasoning is different from yours though. I have come to the conclusion that to actually "afford" a luxury/extra, I need to be able to afford replace it on short notice if anything happens to it. That way I'm not worried about it, or overly protective of it.
Thanks for the input. That’s definitely one path to avoid insurance, buy what you can replace
Thanks for the input. That’s definitely one path to avoid insurance, buy what you can replace
I haven't avoided insurance entirely, I still have extra home insurance to cover the costs of the entire collection.
One thing I didn't see directly mentioned, but something that ties in nicely with your post is "opportunity cost". If you're an average income earner, the things you can't afford to do/buy because you have too much tied up in watches quickly adds up.
A friend of mine took his family of four to Disneyland for a week, and had a hell of a vacation for the cost of a Submariner. Now, a Sub is nice, but the memories made on a vacation are more worthwhile.
I haven't avoided insurance entirely, I still have extra home insurance to cover the costs of the entire collection.
One thing I didn't see directly mentioned, but something that ties in nicely with your post is "opportunity cost". If you're an average income earner, the things you can't afford to do/buy because you have too much tied up in watches quickly adds up.
A friend of mine took his family of four to Disneyland for a week, and had a hell of a vacation for the cost of a Submariner. Now, a Sub is nice, but the memories made on a vacation are more worthwhile.
Yeah absolutely, the amount of discretionary spending is a financial objective in itself, and the enthusiast will need to prioritize all forms of it against buying watches. For example, I try to eat out as little as I can and avoid buying new clothes because I’d rather buy a watch.
I don't think of my watches as anything more than things I enjoy. Yeah, if some horrible situation happened and I had to sell my watches to take care of things, I'd have a fairly nice amount, but the moment I start thinking of them as assets instead of beautiful little mechanisms, I'll just sell pretty much the whole collection (with the exception of my favorite and the three watches my wife got me) and move on.
I wish I knew exactly what my taste in watches was before I started collecting. I started collecting two years ago, I have 15 watches, and at least 20 more have come into and then out of my collection as I learned what really works for me.
I wish I knew exactly what my taste in watches was before I started collecting. I started collecting two years ago, I have 15 watches, and at least 20 more have come into and then out of my collection as I learned what really works for me.
I feel like mistakes early during collecting are unavoidable. And telling an enthusiast to pace themselves during that phase is impossible. Maybe I’m projecting but it’s kind of a lose-lose, which is what makes it fun.
Logically that all makes perfect sense.
HOWever… 🙃
Logically that all makes perfect sense.
HOWever… 🙃
Haha there is no logic in compulsion
Haha there is no logic in compulsion
To be honest, I’ve set myself a limit of 5 watches. If I want something new I need to get rid of something once I’ve hit 5.
It works in restricting how much I buy and therefore how much I spend. And it means I have to think very carefully about the pieces I do buy.
I don’t break down the costing to % and net worth calculations etc but I know myself what’s reasonable and what’s excessive and I try to keep it sensible.
To be honest, I’ve set myself a limit of 5 watches. If I want something new I need to get rid of something once I’ve hit 5.
It works in restricting how much I buy and therefore how much I spend. And it means I have to think very carefully about the pieces I do buy.
I don’t break down the costing to % and net worth calculations etc but I know myself what’s reasonable and what’s excessive and I try to keep it sensible.
That makes sense. It sounds like you have the intuition to determine if a purchase is irresponsible and all your watches combined would still fall short of 5% of your net worth. I think my sense of “value” has been so distorted from consuming watch content that I need a framework like the one above to limit my spending.
Damn I love this post. I enjoyed reading it but I think financial responsibility is rather rare on WC haha
Thank you 🙂
I agree with 1, 3 (although not the math) and 4. My main problem with 2 is that watches you wear shouldn't be considered an asset class but an expense. It's not like you are trying to time the market by buying a watch, keeping it in a safe, and selling it when the market is right.
Most likely you will wear the watches to a degree to where they have lost most a decent chunk of their value, and I also agree with @HotWatchChick69 that the long-term value of a watch is zero. This is not only because they don't generate cash flows, but it is fairly uncertain whether a viable market for wristwatches will exist in the future at all.
Because I consider watches a simple expense I don't set a budget based on calculations on my overall household income or net value, but on how much money I spend on entertainment. In fact, the reason that I bought more watches during the pandemic, was that I had saved funds (travel, dining out, etc.) that I didn't spend somewhere else. This is money that I have left over after everything from retirement savings, transportation, vacation, to the kids college fund are taken care of. If I needed to stretch at all, my watch budget would immediately become zero.
Yep, that's the right approach for watches that don't retain their value. Like I wrote,
If you are buying watches that don't hold their value, there are other frameworks to use such as 50/30/20. 50% of your take-home goes towards needs (for survival), 20% for savings, and 30% for discretionary spending, including watches. This is a pretty big oversight in my post as I was only considering collectibles, and I should edit it to address how to approach budgeting for watches that depreciate heavily.
Also, where did HotWatchChick69 say that? I didn't see a comment here and I'm pretty sure I didn't mute her
Interesting post. Looking forward to reading the rest.
I suppose reading this that im more of a watch enthusiast than a collector? I have a few watches that cost over $1k, but currently none over $5k.
I've always viewed my interest in watches as a hobby and decided not to allocate more than 2% of my annual take home pay to this hobby (about one weeks pay). I think this is a suitable discretionary threshold. I also believe you shouldn't save for more than 3yrs for a watch otherwise it takes on a different value to you and you'd probably be reticent to wear it. A lot of "safe queens" end up that way ...
I don't think the distinction between enthusiast and collector is price point of watches. It's true I'm calling watches that retain their price as collectibles, and more expensive watches tend to retain their price, so one could conclude that a person buying more expensive watches is gathering collectibles, and therefore 'collector' is the natural term. But perhaps the more appropriate criteria for a collector is someone following a specific theme. An enthusiast could focus on buying Japanese market only Citizens and I would call them a collector.
Yep, you're taking the right approach. In my conversation with hbein2022 above, if your watches don't retain value, the advice above doesn't really help. For watches that depreciate, you should consider them as discretionary spending, and one useful approach is the 50/30/20. 50% for needs, 20% for savings, and 30% for wants, including watches. That's great that you are limiting yourself to 2%, because that means you could allocate 28% to other things you love (if the 50/30/20 sounds like it'd work for you)
Well, Brian (HotWatchChick69) decided to let somebody choose his handle as part of a charity auction. The handle may therefore be a bit misleading, but I'm quite sure he is a guy. He talks about NPV quite often, but I think it all started here: https://www.watchcrunch.com/HotWatchChick69/posts/watches-as-investment-an-8-000-word-dissertation-heavy-on-the-finance-and-economics-wonkery-6349
But no, I generally don't account for watches as assets, as I cannot transact them in any kind of regulated market, and if you actually use them for their intended purpose, they take on characteristics of a consumer product. This ultimately applies to all watches, maybe with the exception of some highly artisan or artistic pieces.
As you pointed out in your first paragraph, mechanical watches are an anachronism. There is absolutely no reasonable expectation that there will be a future buyer. If you can't afford to never see the money again you pay for a luxury watch, I wouldn't recommend buying it.
Well, Brian (HotWatchChick69) decided to let somebody choose his handle as part of a charity auction. The handle may therefore be a bit misleading, but I'm quite sure he is a guy. He talks about NPV quite often, but I think it all started here: https://www.watchcrunch.com/HotWatchChick69/posts/watches-as-investment-an-8-000-word-dissertation-heavy-on-the-finance-and-economics-wonkery-6349
But no, I generally don't account for watches as assets, as I cannot transact them in any kind of regulated market, and if you actually use them for their intended purpose, they take on characteristics of a consumer product. This ultimately applies to all watches, maybe with the exception of some highly artisan or artistic pieces.
As you pointed out in your first paragraph, mechanical watches are an anachronism. There is absolutely no reasonable expectation that there will be a future buyer. If you can't afford to never see the money again you pay for a luxury watch, I wouldn't recommend buying it.
Yep you are right, I see that I wrote 'Treat collectibles as an asset class' which means I was advocating for them as investments. I agree, watches are not an investment and should be considered a hobby. I still think if you have watches that have a proven track record of retaining value (such as my 30 year old Royal Oak which has been relatively stable), you should track them as collectibles. And if collectibles make up more than 5% (at most 10% if you are towards the end of life) of your net worth, you should not buy more.
As a 16 year old new to watch collecting, I'd be intrigued to see your pt2 and pt3. I'm considering going for a Seiko SRPE53 which will be around £180. I am a working man, receiving around £60 a week, currently dailying a Casio MQ241E. As a first watch, I'm wondering whether to wait and go for something a bit cheaper or whether to go for it. As I've only been interested in this hobby for a couple of months, I don't want to splash out immediately. Maybe a cheaper watch would be a go to. Let me know!
I think there’s one thing to note when you‘re starting that early - your tastes are going to change more dramatically than you think. Three factors will go into this:
So my advice would be to only buy what you can afford, buy what you like, and if you can, buy icons (higher chance you’ll still love it later). I would also say, at your current salary, it’ll be unlikely you’ll buy anything at the collectible level. I updated my post to include a 50/30/20 framework to guide your budgeting 🙂
I think there’s one thing to note when you‘re starting that early - your tastes are going to change more dramatically than you think. Three factors will go into this:
So my advice would be to only buy what you can afford, buy what you like, and if you can, buy icons (higher chance you’ll still love it later). I would also say, at your current salary, it’ll be unlikely you’ll buy anything at the collectible level. I updated my post to include a 50/30/20 framework to guide your budgeting 🙂
Cheers pal, much appreciated. Yeah I can afford it, but it’s just there’s options from Vostok that are also really cool and a bit cheaper
This has uplifted me. Based on my net worth and my current collection, I have only 1.08% of my net worth tied up in watches. I can justify that JLC I've been eyeing!
This has uplifted me. Based on my net worth and my current collection, I have only 1.08% of my net worth tied up in watches. I can justify that JLC I've been eyeing!
There you go brother!
GoingTopShelf's post 5 years from now: "What I Wish I Never Did: Listen to K.evin's Advice"
I think your formula in point 3 is overly simplistic. As you go along in life, and assuming you are doing the right things, your net worth will go up by more than the static amount. Your watch budget increases accordingly.
I've been in the hobby over 40 years and if I had used your forcast model back then and compared to where I've ended up now, its not even close. There are so many other factors to consider, just sayin.
I think your formula in point 3 is overly simplistic. As you go along in life, and assuming you are doing the right things, your net worth will go up by more than the static amount. Your watch budget increases accordingly.
I've been in the hobby over 40 years and if I had used your forcast model back then and compared to where I've ended up now, its not even close. There are so many other factors to consider, just sayin.
Yep I wanted to err on the side of caution and keep it simple so the post was readable. People should realize annual returns in the S&P 500 have been above 10% since the index was created, salaries don't stay stagnant, there's inflation, and there’s various planned/unplanned scenarios I can’t forecast for the reader such as wedding, children, medical emergency, etc. But you are right
This all makes sense and is a good way to go about it. But most people won’t go this in depth. For me, what I’ve learned from my collecting, is save and buy what you actually want. To a reasonable and responsible amount. Saving and just buying my grails would have saved me a ton of money. Instead I bought a bunch of cheaper alternatives to scratch the itch. Sure you need to go through that to get your taste down but that should be on super cheap watches. Not on $500+ versions.
This all makes sense and is a good way to go about it. But most people won’t go this in depth. For me, what I’ve learned from my collecting, is save and buy what you actually want. To a reasonable and responsible amount. Saving and just buying my grails would have saved me a ton of money. Instead I bought a bunch of cheaper alternatives to scratch the itch. Sure you need to go through that to get your taste down but that should be on super cheap watches. Not on $500+ versions.
Yeah unfortunately there’s no advice I can give about that. “Take your time”, but I can’t preach what I don’t practice. Do you think ‘wasting’ that money was avoidable? Would you have saved money if you deliberately spaced out your purchases more?
Yeah unfortunately there’s no advice I can give about that. “Take your time”, but I can’t preach what I don’t practice. Do you think ‘wasting’ that money was avoidable? Would you have saved money if you deliberately spaced out your purchases more?
It was avoidable but also it’s part of the journey. If I just bought my two grails (which I have now) I would have saved a few hundred dollars I lost buying and reselling cheaper watches for less than I paid. Nothing crushing on my finances but say someone did the same thing with MUCH more expensive watches. That could be thousands of dollars lost.
Watches are entertainment. Just like we budget for cable/internet, the wife and I each have a set amount that we allow ourselves for spending as we see fit.
But our kids are grown, we are approaching retirement.
Life is too short to be that anal about what I spend on what I enjoy and this from someone with significant OCD.