Tuesday, March 11, 2008

The Best Personal Finance Tip I Ever Gave (or Got)

This article is a little longer than normal,
but I hope you'll agree that it's worth the time.

Over the years, I’ve taught classes and given seminars in personal finance, budgeting, and similar topics, and I have received more positive feedback about one particular money saving tip than all of my other “imparted wisdom” combined. People still occasionally come up to me and tell me how they have used this method successfully. And I am not exaggerating when I say that in following this one piece of advice, I have personally saved tens of thousands of dollars.

I’m quite sure I have your interest by now, so without further ado, let me give you my "prime directive." (drum roll please) ...

When you feel like you want or need to buy something, put it on a list, but do not buy it right away. When an item has been on the list for a predetermined amount of time, say three or six months, feel free to buy it.
How can this simple rule be so effective as a money saver? There are several reasons, and to be honest, I didn't really see all of them when I first started employing it in my own life.

To me, the main benefit was that it provided a "testing period" to see if I really did want or need the item. I have been amazed over the years at the number of things that just "drop off the list" for lack of genuine interest. If I tried to actually calculate the savings I've "earned" from the "drop offs," I couldn't even begin to calculate the value of those things I never bought.

Impulse buying, by definition, is eliminated by using this method. And I've never felt like I was denying myself when I didn't buy, because I was not telling myself "No," but rather I was telling myself "Wait." That is a much easier mental battle to win.

But there is another huge saving from employing this method. While I was waiting, I would tend to "ask around" among friends for their advice on the purchase... what brand, where to get it, etc. And again, I can't tell you the number of times one of my friends would have valuable advice about where to get it, or even better, clue me in to someone they knew who was selling one in great condition, or offer to lend one to me to see if I really liked it.

Probably my favorite story along these lines was a car I bought around 1990. I knew my current vehicle's day were numbered, so I put "car" on my list and started my routine of talking to friends. One such friend was a salesman for a large company in the area, and told me, "If you can wait until May, I have to give up my lease car and get a new one. They make us get rid of them after 60,000 miles, but it's barely over a year old. I love the car. I'm going to get another one just like it. Almost all my driving has been highways, and they scrupulously make us bring them in for servicing."

So I bought his car from the leasing company, a Chevy Corsica. By the time he turned it in, it was eighteen months old and had 72,000 miles on it. Because of the excess mileage (for which his company paid extra in accordance with the lease), they offered me the car for $3500. In my opinion, even with that mileage, it was worth at least double that amount. I happily drove that car for for another seven years.

Although my friend changed companies during those seven years, I was later able to buy two more lease cars through another friend who was a salesperson for a major drug company, both nice Ford Taurus sedans that I also loved. I'm confident there was at least $10,000 in savings just on those three cars.

But other great deals are springing to mind as I write this. A friend knew a friend who built computers and offered us bargain PCs if we got together and bought three of them. A set of Titleist golf clubs were offered for $75.00. A nice TV that was being given away because "it didn't go with the new furniture." Childrens clothes galore were passed around among friends and family. And all because we didn't rush to the store when we felt a need or want push itself to the forefront of our consciousness.

Now you may have noticed that the rule itself is pretty vague. I have seen several versions, tailored to fit individual circumstances. Some people actually make a formal list, others just do it mentally. Some use longer time frames, giving themselves more opportunity for scrounging, um, I mean, product research. Some people vary the time according to the value of the item.

In all the years I've employed this strategy, I don't recall ever feeling like I was denying myself. As I say, you are not telling yourself "No." You are telling yourself "Wait." And I have to say also that I've enjoyed being on the giving end of some great deals as well. It makes you feel like you're "stickin' it to the man," whoever "the man" is.

So try it out. It has saved me tens of thousands of dollars. And remember, most of that was during the olden days, before "Craigs List." :-) Bob

2 comments:

doug said...

Bob,
That is a great idea that finally needed to be written down. I've struggled with impulse buying and I found that especially when I would walk into a bookstore. Writing down on a list was very helpful to me, to either go to the library, borrow the book and it was great, buy it.
I've found that by writting it down on a list, I can do some research on what I need and make a better purchase. In the future, I will look for those great opportunities that you listed.
Thanks again.

surfergrl said...

I have a list already, and about 6 amazon wish lists.

I also find that taking a photo (just with my phone) helps if I'm in a real store. I've got a little folder full of such photos.

This tip really, really works!