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Reader Question – Buy Me Now or Buy Me Later?

August 12, 2010 · Filed Under Random · 4 Comments 

I was recently presented with this question from one of my readers:

Thought you might be interested in weighing in on the decision we are needing to make. We are nearly entirely on a fixed income now, so there is no cash from the working budget for any large purchase. Our clothes washer is at least 13 years old and has been making strange noises for some time. The repair man said not to put any more money into it if breaks down again. So here is the decision: do we gamble and wait for the thing to die and then possibly have to pay a larger amount (from savings) for a new one OR do we take the money (again from savings) and purchase a new one now, hopefully on sale and while we can get a little Energy Star appliance “clunker” rebate from the government? Which move is more financially prudent?

I think the key here is to not have to put the purchase on a credit card and pay a high interest rate on it thus making a difficult purchase even more so.  In either case you describe, you are using your own money to purchase the washer.  If you were saving up to be able to buy one later but had to use a credit card to buy one now, I would say wait and save.  That is not the case for you.

Let’s look at the details a bit more.  We’ve already established that you are using money from your savings.  The question is should you wait or do it now.  The advantages of buying now are that you can be proactive about finding a sale and use the appliance clunker rebate (of course, each state handles this differently).  Another advantage of waiting would be to earn interest on the money in your savings account while it sits there.  That is not going to amount to a significant amount of money even if you do get another year or two out of your washer.  At $1000 with current rates maybe at 1%, that’s $10 a year – not very much.  As long as we’re talking small sums of money, don’t forget to consider how much more energy efficient a new washer would be compared to one that is 13 years old.  A new one will most likely save you some energy costs and the sooner you purchase one the sooner you’ll start realizing those savings.

On the flip-side, the pros for waiting are that your washer could in fact continue to work for a long time thus saving you that cash outlay for months or possibly years.  I guess that’s all I can come up with as a pro for waiting (I’d have a better argument for waiting if you told me you were going to charge it and pay it off over the next 24 months!)

Again, I think the overarching key to this question is whether you can make the purchase now with your own money or if you have to use a credit card.  If I were in your position with money in the bank to purchase a new washer, I would start looking for one.  Do your research for price, effectiveness, and reliability, check out different stores, search for coupons and sales, etc.  Basically, I’m suggesting that you prepare yourself ahead of time so you can take your time but still be ready to pounce when you find a great deal.  Good luck!

I’d love to hear if any readers would like to chime in with some (possibly different) advice…

Financial Peace University Lesson 8 – That’s Not Good Enough!

December 4, 2009 · Filed Under Financial Peace University · 3 Comments 

How to Buy Only Big, Big Bargains

This week’s lesson centered around making purchases, especially bigger ones, and getting really good deals on those purchases.  The main way to accomplish this, and what Dave spent most of the lesson discussing, was through negotiation.

Negotiate everything

First he pointed out the difference between the US and most other cultures of the world.  In the US for some reason, most people are very reluctant to ask for bargains.  Of course this is quite the opposite in numerous other countries where haggling takes place over just about every purchase.

So, the first thing you need to do is change your mindset – it is ok to haggle and get a good deal.  Negotiate everything and don’t be afraid to ask for a good deal.  What’s the worst thing that could happen – they say “no?”  If that happens, you’re no worse off than if you hadn’t asked at all, so who cares?  If you ask, you might get a great deal, if you don’t ask, you definitely will not get that deal.

Dave’s Seven Basic Rules of Negotiating

  1. Always tell the truth
  2. Use the power of cash – it is emotional, visual, and has immediacy.  Ramsey likes to tell stories of how when he is looking for a really good deal, he walks into stores with hundred dollar bills.  He claims that he can usually get a really good deal when he starts peeling off and counting those $100 bills in front of the salesperson.  He also seems to have a ton of fun doing it – I think I need to try this for our next significant purchase.
  3. Use your “walk-away power” – it is critically important that you keep an emotional distance from the item.  If the salesperson knows that you have already bought the item emotionally, then there is no need to negotiate with you, is there?
  4. Shut up – ask questions, gather information, and just listen.  If you let the other person do most of the talking, you might just be surprised what you end up hearing!
  5. “That’s not good enough.” – This is Ramsey’s favorite phrase during a negotiation.  He suggests saying it and seeing what happens.
  6. Good guy, bad guy – when someone is using this technique on you, the way to neutralize it is to get to the bad guy and directly negotiate with him/her.
  7. Use the “If I” take away technique – in other negotiating classes I’ve taken this was referred to as “nibbling.”  When you are closing in on a deal, use this technique to take a few final nibbles and get a deal with which you are really happy.  An example might be, “If I purchase this widget at that price, I need you to throw in free widget washing for a year.”

Have patience

Having patience is a usually necessary for getting a great deal.  As mentioned, maintaining that walk away power is very important.  So, maintain it, and use it when you need to.

Remember, it’s your money, no one can force you to buy a product at a price with which you are not happy.  When I was negotiating one of our cars a few years back, I remember telling myself this over and over.  You get into a car dealership and they try to make you feel bad about not giving them their price and all this and that…so remember this tip.

Give it a try

As I mentioned previously, you don’t really have anything to lose by asking for a better deal.  I admit that I don’t negotiate often.  Usually, I’ll sit through a session like this and get all fired up about negotiating.  I’ll then go out and try it and almost always have success…but over time I just stop trying it.

The last major thing I negotiated took place a few years ago when we needed to get a liner put into our chimney.  The quote I had was $2400.  So, I exercised some patience and waited about 5 months until March, which is typically  a time that chimney companies don’t have a lot of work.  I simply called up the company and asked them if they’d be willing to do the work for $2000 if I paid cash.  The receptionist put me on hold for about two minutes, and came back and said, “sure, when would you like us to come to do the work?”  It was a pretty simple thing to do to save $400!

My advice to you is to try negotiating some stuff – get over your fear and your concern that you are ripping the other party off.  If you are being honest with them, there’s no need to feel guilt or shame over it.  Remember that no one can force you to buy a product and, on the flip side, you can’t force anyone to sell you something.  If they are not comfortable with your offer, they can always say “no.”  So try it – you just might be pleasantly surprised by the result!

Check out my previous FPU posts:

Financial Peace University Lesson 6 – Buyer Beware

November 6, 2009 · Filed Under Financial Peace University · 1 Comment 

Caveat Emptor (Let the Buyer Beware)

The main purpose of this lesson was to expose us to one of the “enemies” of our financial peace – the enemy that is making poor purchasing decisions.

There is an incredible amount of marketing that we all are exposed to each and every day.  Of course, the main purpose of all of this marketing is to separate us from our money (more specifically it is for specific companies to get some of that money but it’s the same thing from our point of view).  This does not mean all companies are evil or something like that – they are trying to make a profit and they have to sell products and/or services to do that – but we need to be aware of how we are marketed to in order to ensure that we don’t fall prey to bad purchasing decisions.

Think of all the ways you are marketed to in any given day.  There is personal selling, product positioning (there is a tremendous amount of effort that goes into where the items are placed at groceries stores, for instance), TV, radio, and internet ads, and so on and so forth (warning – editorial opinion upcoming: Remember all those debates about how TV is bad for kids to watch and influences them to act poorly and do stupid things.  And then the people on the other side of the debate say, “no, that’s silly, TV doesn’t influence people.”  Well, I think the fact that companies spend billions of dollars each year on TV ads pretty much proves that TV does influence people – either that or all those companies are stupid).  Another method that you see often is the use of financing as a marketing tool.  You often see the carrot of “90 days same as cash” used to entice you to buy something that you can’t really afford right now.  An eye-opening statistic from Ramsey: 88% of 90 days same as cash contracts convert to payments!! (and remember, if they do convert, most make you pay back all the interest that accrued during those 90 days!)

Ramsey then did an interesting thing at this point in the lesson; he went through a number of different product tag-lines, stuff like “melts in your mouth and not in your hand,” and basically everyone in the audience as well as our class knew the products that every catchphrase was trumpeting – this marketing stuff works!

Developing power over purchase

In the most marketed-to culture in history, how do you resist all the temptations and only make appropriate purchasing decisions?  To help us do so, Ramsey detailed five steps to follow before making any significant purchase.  First, what is a significant purchase?  Well, it is whatever you say it is.  He recommends that anything over $300 qualifies as a significant purchase, but this will obviously be different depending on your unique circumstances – maybe higher, maybe lower.

You must develop “power over purchase” by following these steps:

  1. Wait overnight before purchasing – maybe in the morning that gadget you “needed” won’t seem like so much of a need anymore.
  2. Consider your buying motives – Ramsey states that no amount of stuff will provide true contentment or fulfillment.
  3. Never buy anything you do not understand – I guess this doesn’t really apply to a DVD player since most people won’t understand that – but are you sure you really (really) understand how that cash value life insurance plan works?
  4. Consider the “opportunity cost” of your money – If you do something with some of your money that obviously precludes you from doing something else with that same money.  Ramsey told this illuminating story about a friend who wanted to purchase a new car but couldn’t force himself take the money out of his mutual fund to buy it.  A number of years later he saw another guy driving that same car he had wanted.  The man driving the car had just purchased it used for about $5000 while the mutual fund that Ramsey’s friend still owned was worth more than $300,000.  That car had a $295,000 opportunity cost associated with it!
  5. Seeking the counsel of your spouse (or financial accountability partner) – self explanatory (or at least it should be…if it’s not, you have some other things to work on as well!).

Following these five steps will not guarantee that you will never make a poor purchase (you’re buying stuff all the time and nobody’s perfect) but it will go a long way towards helping you to make good purchasing decisions as often as possible.

Check out my previous FPU posts:

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Does Waiting a Few Days Before Making a Purchase actually Save you Money?

March 5, 2009 · Filed Under Random · 4 Comments 

My mp3 player, a Creative Zen Microphoto, died last week.  It was acting funky and I tried to upgrade the firmware and it completely stopped working.  All I get now is the dreaded "Hardware Problem" message when I can get it to come to life at all.  It did not take me long to realize how much I used that thing.  My office is so quiet without it and I can not imagine working at Panera without using it to blur the chatter around me.

On a course to excess

I immediately started investigating replacement options for my Zen.  My wife has a Zen V (it’s nicer than my Microphoto was) which she likes well enough but she does have complaints about it, mostly surrounding the user interface.  Since I’ve always heard the hype about how great the iPod interfaces are, I thought I might check them out.

My first mistake

I started by checking out the price of the iPod Nano which I didn’t think was exorbitantly priced.  I then did what every responsible shopper does, I asked some friends if they had any advice (it seemed reasonable at the time but turned out to be a mistake).  A friend from work told me that his wife used to have a Nano and that he now had an iPod Touch and was adamant that I needed to get one too.  Too expensive I said so he told me to look into one of the 8 GB models.

My second mistake

Now came a big mistake…I went to the store and played with one.  I am not one for hyperbole, but man, that touch screen interface is awesome.  At this point, I’m checking the price at various places and quite interested in buying one of these iPod Touches.

My third (and biggest) mistake

The next morning, my wife and I were in Panera which just happens to be next to the AT&T Wireless store (you see where this is going, don’t you?)  Without thinking it through, I said, "Hey, let’s stop in next door and let me show you the iPhone because it has the same interface as the Touch."  Well, after that….of course, now I want an iPhone (and so does my wife!)  It’s strange that the iPhone actually costs slightly less than the Touch but naturally you have to buy it with a two-year contract for cell phone service.  A comparable plan, even with unlimited data for the iPhone is only a few bucks more a month than our current plan, so it is feasible.  But it would mean that I’d have to move mine, my wife’s, my mother-in-law’s, and my father-in-law’s phones all over to AT&T since we have a family plan.

Finally some sanity

Discussing it that evening, my wife gave me some excellent advice.  She told me to just do nothing for a week or so.  "Aren’t you always talking about Dave Ramsey or somebody – didn’t you tell me he says that you should wait a few days before making any significant purchases?"  To which I naturally replied, "BUT IT"S SO QUIET IN MY OFFICE AND I NEED AN MP3 PLAYER…RIGHT NOW!"  But I knew that she was right, even if I didn’t want to immediately admit it.

Of course she was absolutely correct and I have heard that piece of advice from multiple sources.  Dave Ramsey specifically states that you should always wait overnight before making a significant purchase.  And on a related note, he also suggests that you never make a purchase of more than $300 (or whatever you set it at for your family) without consulting with your spouse.  I think this is very, very good advice (even though I didn’t really want to hear it at the time) and I would definitely recommend it to anyone in a similar situation.

So I begrudgingly decided to do nothing and see how much I really need an iPhone or Touch or whatever later this week.  I am putting this oft-repeated technique into practice to see if it enables me to make a level-headed and informed decision.  I will let you know how it goes.

Two things I’ve learned from this experience.  First, at some point, my wife has actually listened to some of the financial talk I’m usually spouting off to her!  Second, and listen closely to this advice: if you do not want to buy an iPhone, do not ever play with one!

Reminder: Consider the Total Cost of Your Significant Purchases

July 30, 2008 · Filed Under Spending Money · 4 Comments 

HDTV Have you ever watched a high-definition feed on a large HDTV? A few times recently, I’ve considered purchasing one of those fancy, wide-screen, 1080p, LCD or Plasma HDTVs. We were on vacation recently at my sister-in-law’s house and they have a sweet 42” LCD HDTV. Naturally, I’ve been thinking about it again – the prices have been dropping over the past few years and it does provide a remarkable picture! (even watching golf seems better on one of these)

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