Question (a simple question):
If chasing after discounts, coupons, cash-back bonuses, frequent flyer miles and all that other junk was such a good deal, why not quit your job?
Think about it. If you get 10% off on a purchase, then it would make sense to purchase $100,000 of goods, sell it for $95,000 (a discount off market value) and then pocket $5000. You'd be rich in no time! Do this once a week, and you'd make $250,000 a year.
If this were true, we'd all quit our jobs and then shop for a living, living off our bonus coupon discounts and such.
The Answer?
Well, the goods are not worth $100,000. They were only worth $90,000 - which is their actual market value. You could not re-sell them for even a 5% profit.
The price you pay, with Bogos, rebates, coupons, and all that other crap is just the market price. You only think you are saving money by comparing your "discounted" price to some fake "retail price" that no one pays.
However, the psychological inducement of the "bargain" does encourage you to spend more and also make purchases you might not otherwise make - which negates any real savings.
Don't let the carnival distract you.
Pay the lowest possible price, of course. But don't think for a minute that these gimmicks are anything but gimmicks.
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3 comments:
I am basing this on a membership store that I subscribe to. 2% of the total handle gets refunded to me by the store yearly with no limit and my credit card refunds 1.5% right away also. This is 3.5% which is not taxed.
Here are the impediments to doing this for a living:
1. You cannot resell anything requiring a refrigerator or freezer like meats or milk unless you have the proper licensing.
2. Licensing is also a requirement for anything alcoholic.
3. You definitely need to carry a gun because you will be handling large sums of cash.
4. You do not have the facilities to resell what you buy.
What does this point to? Of course, a bodega deli or a neighborhood wine shop. Buying stuff at a big box store and selling it at a local joint is a very common business model. And let me tell you that the 3.5% after tax back looms very large in this picture.
I know of a guy who buys stuff at a Costco in Queens, drives it in a U-Haul to a wealthy area in Manhattan (I think the Upper West Side), parks in a private lot and resells it. He was making and continues to profit about $500 every Saturday and Sunday. Parking in that lot is very cheap on weekends. He also worked out a deal with U-Haul to get the truck cheap. Weekends are also cheap for that in Manhattan. The distance from the Costco to the lot is only 5 miles so you use almost no gas. And you have no toll because he uses the 59th Street Bridge (or whatever it is called now). He sells nothing that requires any sort of a license and he does very well. The parking lot already has a retail license and insurance. He does have a legitimate business license and charges tax properly. He only takes cash.
Why don't I do it? I am risk averse. I am not that good of a salesman. I live 60 miles away from Manhattan. I do not have a handgun or a permit for one. I believe this fellow is a retired cop. I already work a difficult job and need some downtime.
To continue....
I do earn money by shopping in small ways. I buy groceries for my parents and my in-laws and mooch the rewards. Neither side can lift anything heavy but they do get along well.
I correlate this shopping with a normal visit to them so it really does not marginally cost me anything to bring the stuff over there. I know that I get $35.00 for every $1000 that I bring them. So that is about $200 per year untaxed.
Can I do this on a larger scale? By 'this' I mean buying and transporting groceries and reselling them at the price I paid for them profitably. Maybe. I live in a 55 and over neighborhood where people cannot handle the pressure of shopping in a warehouse store but do want the discounts.
So, I conclude that the card rewards are an important part of a 'personal shopper', small store operator, and gypsy Costco reseller operation. As the population ages services like this I feel will be very profitable. Will that profitability exceed the compensation package that I already earn? Maybe.
$200 a year? Hard to live on that.
And I think that makes the point. These "deals" are anything but, and while you can eke out some money in the margins this way, it hardly is a get-rich-quick scheme.
A friend of mine lives in Maine, where there is a chain of discount stores that gets a lot of merchandise from major department stores.
She buys clothes there for a fraction of retail price, and then puts them on eBay, setting the minimum bid higher than what she paid. If it sells, she makes money.
If not, she returns it to the store, as they have a "full refund" policy.
Does she make money at it? Yea, but it is a full-time job and she is living in rural Maine in a trailer, where the cost of living is cheap.
And she is buying remaindered merchandise for below wholesale and then selling it for below retail - still with a 50-100% markup.
But 5% off coupons and the like - the "discounts" and "savings" the Great American Marketing Machine throws in our face - they are not enough to make anyone a significant amount of money, it any at all.
9 times out of 10, you can do better by shopping on price alone at a competing store.
And that 1 time out of 10? You can afford to leave that "money" on the table.
Chasing after coupons, discounts, rewards, and the like is NOT sound financial thinking. It is just falling into a giant marketing trap.
Period.
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