Sunday, March 20, 2016

Rule #41 Choose Value over Price

"Price is what you pay. Value is what you get." -Warren Buffet

One thing that has been said to me a few times is: "You can afford it so why don't you buy it?"

My father asks me almost every time I see him about something-or-other he saw on TV.  "I don't have cable Dad, I didn't see it." is what I usually say.  Dad still doesn't quite understand how we can live without cable TV.   We certainly can afford to pay the additional 30-50 bucks for the service, but why should we?  The reason we don't have cable is we focus on value instead of affordability, and we simply don't place much value on TV watching.  We usually only consider the affordability AFTER we've decided there is value in it.  Intuitively, you'd expect everyone to do the same thing, but I'm not so sure.  Using the Cable-TV analogy, how many times have you heard someone say "A bazillion channels and there's nothing on"?  or "I should get rid of cable... I wish I could just cut the cord."  I've heard it said quite a bit.  I've also heard people use the bundling excuse to justify why they have cable:  For an extra $20 a month, we'll add Basic Cable on to your internet-service bill.  Wow! Only $20!  "I didn't really want Cable TV, but this deal is pretty good, so I'll add it on."  Thats $240 a year for something you didn't really want in the first place.  Sure I want a good price, but I want to make sure we're getting good value.  I actually know of families who pay close to $100 A MONTH for a deluxe cable TV package, and still complain that there is nothing on.

Another analogy is the upsizing of portion sizes at a fast-food restaurant.  I've gone to fast food restaurants and ordered a sandwich and fries... For $0.30 more I could have ordered a combo meal and gotten the same foodstuffs with a medium sized pop as well.  But I didn't want a pop.  I know people who will always get the combo because its the better deal.  Its cheaper than if they purchased all of the items individually, so its very tempting to take the deal.  Now $0.30 isn't much money, but its for an additional item that I don't want.  Later in the day, I won't regret not buying it, and my waistline will thank me.

Memberships to the gym or joining clubs where we don't believe we will get the full value of the cost of joining are another example of things we wont buy.  If there is an a-la-carte option, we will typically take that one until we know for sure we will get good value for our money.  If I am only going to go to the gym 2 times a month, then it likely makes no sense for me to pay the monthly rate, especially if I would have make a 1 year commitment, which many gyms require.

TVs, electronics, new vehicles, dinners out are all things we could afford to do more of, but we place little value on these things, so we just dont spend our money that way.  It results in us having more disposable income and have more freedom and flexibility with our money.  Its one more way of not keeping up with the Joneses.

Thats not to say we don't spend money on things, or experiences that enrich our lives.  We try to buy things that are of high quality and will last a long time.  Because of this, we often spend more up front in order to have quality that lasts longer and requires less maintenance.  This ensures that we don't have to replace things prematurely either because of malfunction or it goes out of style.  We recently bought a $2000 couch.  It was regularly $3000 and was on sale for $2000.  The couch is made with high quality and durable leather that will last a long time.  While $2000 is still a lot of money to spend on a piece of furniture, we have two young sons who are hard on furniture.  By spending more on a quality couch, we hope to avoid having to replace that couch every few years.

Buying cheap and disposable things just isnt our style, and financially we feel it a wasteful way to spend our hard earned money.  While there are a lot of things that we can afford, we are very picky on what we are prepared to buy.

Thursday, March 26, 2015

Lumbergh agrees! The first 40 rules.

Hey, here's the first 40 of Ryan's Money Rules.

Rule #1: The Power of Compounding - Earlier is Waaaay Better!
Rule #2: "Lotteries are taxes on the stupid"
Rule #3: Defining Assets and Liabilities
Rule #4: Never Carry a Credit Card Balance... Ever!
Rule #5: Know your Monthly Expenses!
Rule #6: Forget the Latte, Its the Car/Vacation/Renovation Factor
Rule #7: Maximize income in AFTER TAX money
Rule #8: Your Home is not an Asset
Rule #9: Spousal Financial Compatibility is VERY important
Rule #10: Thumb your nose at the Joneses

Rule #11: Dividends - Buy Stocks for the Cash Flow
Rule #12: Use Leverage for MORE positive cash-flow!
Rule #13 Take Accountability. Stop Whining! Go Read a Book already
Rule #14 Live on one salary
Rule #15 Don't try to "Beat the Market"
Rule #16 Plan on Financial Independence without CPP
Rule #17 Save/Invest ALL windfalls or bonuses
Rule #18 Don't Diversity... too much
Rule #19 No Fixed Income
Rule #20 Set Financial Goals

Rule #21 Chart your Progress!
Rule #22 Pay your bills on time.. Every Time!
Rule #23 Automate all Monthly Payments
Rule #24 Borrow money for things that appreciate, pay cash on things that depreciate
Rule #25 Live like a student as long as you can
Rule #26 Create/Develop Multiple Income Streams
Rule #27 No Financial Advisor
Rule #28 Pay No Bank Fees
Rule #29 Talk about money. Ask about money.
Rule #30 Live where you Work, Shop and Play

Rule #31 Out of Chaos comes Big Opportunities. Be Ready!
Rule #32 Take Full Advantage of Employer Matches
Rule #33 Don't spend all of that salary increase
Rule #34 Find Yourself a Money Mentor
Rule #35 The Main Goal is Financial Independence, Not Retirement
Rule #36 Owning a good company is are better than working for one
Rule #37 "Hedge" against price inflation by investing in staples you use
Rule #38 Use good debt wisely, get rid of bad debt completely.
Rule #39 Adopt an Entrepreneur/Investor mindset
Rule #40 One week wait time for impulsive purchases over $100

Plus there's these two gems:
Dividend income growth... 16 months in review
Buy vs Rent. Why we're okay with renting today

Wednesday, March 25, 2015

#40 One week wait time for impulsive purchases over $100

About 3 months ago, a friend of mine showed me her new juicer.  I had just watched Fat, Sick and Nearly Dead a few days prior and I was feeling all jazzed about juicing and wanted to see one in action.  It looked a bit like a mini rocket ship, all stainless steel and fancy-like.  That night, I went home and fantasized about what a juicer would look like in our kitchen.  I thought about how we could get a blender/juicer combo machine and replace our 15 year old, still fully functional, blender with something much more modern looking.  I scoured for the best deal on the blingy-est juicers imaginable.  I didn't realize blenders and juicers were so popular... and so expensive.  There were lots and lots of options.  I could have clicked buy button a few times, but I didn't.  I waited a few more days, fantasized about it some more... then after about a weeks time, I forgot all about it.

I recently began thinking about it again, but this time thinking that I'm not so sure I'm ready to get into juicing, and that blender we have still works just fine.... good enough for smoothies at least.  Phew! We saved ourselves about $400 and didn't end up with a shiny new 25 pound paperweight.  I'm sure glad I didn't rush out and impulsively buy one.  In our modern society, there are many many ways that businesses, organizations, and governments try to separate us from our money, and slick sales pitches and the latest rage suck people into buying all sorts of things they don't really need or want.  I believe that if we all exercised a little patience, and gave sober second thought time to work, we wouldn't buy so much "stuff" which leads people away from meeting their financial goals.

If we are out and about and we come across something that we want to buy but weren't planning on purchasing at that moment, we wont buy it without our standard waiting period of 1 week.  Impulse spending is something that we have pretty much cut out of our day-to-day shopping.  I can think of numerous times where I've been out shopping, seen something I was convinced that I really wanted but did not buy because it was over $100.  I've gone home and thought about it for a couple of days, chatted about it with Kim, and by the end of the week, I had forgotten about the product altogether.  The juicer is a perfect example of that.  Obviously this was a product that I could live without.

We as a couple have had this rule for over a decade and I can't think of an instance where we've broken the rule.  Of course there are times when we've spent money on things that were not in the plan because something came up... like a surprise $300 mechanic bill for the car for example, but we've never gone out for a walk in the shopping district with no intention of buying anything, seen a $200 lamp, and then bought it without giving it more significant thought.  This has stopped us from spending money on many things that we didn't need or didn't really want.  I would say that 80-90% of the things that we impulsively think about buying, we never buy.  This sober second thought check that we have in place prevents us from buying things we don't need or even want after a week or two.

This is not the same as going out, intending to spend $500 on work clothes, yet not knowing exactly what we are going to buy, but still coming home with $500 in work clothes.  In this case, it was part of our plan to go out and purchase $500 in goods.  If we need the clothes, we go out and buy them with conviction.  Its the impulsive purchases we want to eliminate.

Think about it.  

Some of the things we've thought about buying but after parking the idea for a week, we have not acted on, saving ourselves lots of money, are: various exercise machines, a juicer, fancy knives that can cut through a metal can, a motorcycle, bicycles, vacations, home improvements, furniture etc..

With that said, its not like we haven't bought some of the things that we've thought about for a week or more.  Its just that the extra week's time gave us enough time to think it over, ensure we had the money for it, and made sure it was aligned with our priorities.  Some of the things we HAVE bought after the 1 week wait have been: an exercise machine, bicycles, a motorcycle, home improvements, furniture.

We certainly are not doing without, but this added check we mentally have in place makes sure we don't buy stuff on a whim.  There is nothing magical about the $100 threshold.  We chose it as an arbitrary minimum that works for us.  The rule is, if its over $100, we wait, we chat about it, and if after a week we believe its worth getting, then we take action which may involve buying the item or adding to our sale watchlist.  Its not to say that we don't give everything we think about purchasing a similar level of scrutiny, but it does allow Kim or myself to go out, see a pair of shoes we like, and buy them without feeling the wrath of the other spouse.  I believe the value in the wait time is not so much the money value, but preventing buyers regret later on.