Wednesday, July 11, 2012

Buyer's Checklist

When you set out to buy something, it is tempting to just plunk down money.   But bear in mind that in the Marketplace Battlefield, your only weapon is your money.  Once you shoot off all your ammo, you are defenseless.  And no, posting whining comments on ripoffreports is not going to get you any satisfaction.

Most people have "buyer's remorse" at one time or another - after they have bought something fairly expensive and realize that they paid too much for it and moreover it was less than they expected.  And this rarely goes away.  When you get a reasonable deal on something, you  always have good feelings about the product, unless it is a dud.  But when you overpay for something, it always nags you - or it should - for the rest of your life.

And buying things that are unnecessary is also a good way to squander a ton of dough.   And you will regret spending the money later in life.  Why?  Because the amount of money you make in life, is a finite number.  No, really.  You can't just "make more money" to offset a bad purchase.  That decision is irrevocable and your overall net worth is dinged by that amount.

And that is the problem right there, with the monthly "cash flow" mentality.  People believe, at age 30, that their income is an open-ended proposition.  If they squander $30 today, there will another $30 next month.  But in terms of your working career, you can only earn so much money  -  a very finite number that you can estimate today with great accuracy.  You can't just "make more" - it isn't there to be made.

Before you buy something, it might be useful to ask yourself a few questions, first:

1.  Where will this product be in 10 years?   If is an electronic device, likely in a drawer or discarded, as it will be obsolete.  If it is a car, likely sold, as most people trade cars about every five years.  Even if you kept the car, the "new car smell" would have disappeared after the first six months (so why not buy a late-model used car?).  Look at your old car and the drawer full of obsolete electronics that most folks have, and realize that what is shiny new and desirable today, will turn to useless junk in short order.

2.  Are you fully funding your retirement?  This is the first bill you should pay, not your last.  Yet most people save money from "what is leftover" after paying bills.  And of course, nothing is ever leftover.  If you are not saving money for a rainy day or for retirement, you can't afford whatever it is you are contemplating buying.

3.  Will this purchase put you deeper in debt?  And by this, be sure to add up the obligations with regard to cell phone plans and the like.  If your debt load is increasing, you don't need to add more, in terms of car payments or cell phone contract obligations.  The goal is to get out of debt and stay out.

4.  Is this a NEED or a WANT?  In America, the strangest things are posited as needs.   A youngster says, "Grandma, I need a reliable car to get to work!  You don't want me to lose my job and end up as a crack whore again, do you?"  But a brand-new car is hardly a need, nor is an expensive cell phone - particularly when less expensive alternatives exist.

5.  Are you thinking Emotionally? And be realistic here.  Do you fantasize about what life will be like with your new car, cell phone, or expensive sneakers?  Do you secretly believe that others will be envious of you for having such a possession?  Look deeply inside before you answer.  In many cases, the motivation to purchase a car or cell phone is based on envy and greed.  Once they have sunk these hooks into you, you will get screwed.  Car salesmen love it when you get emotionally involved in a product.

6.  Have you really shopped around on price?   Not only should you compare prices from different dealers or retailers, you should compare alternatives.   A new garage door opener was $140.  The repair kit was $25.   Fixing your old car or just keeping your old phone COULD be a better option than buying new.  A new iPhone 4G is over $500 on eBay.  The 3G model is as little as $79.   Is there really that much of a difference?  If you wait a year, how much will a used 4G model sell for?  And are you really going to pay extra for a white one, versus black?  (See emotional thinking above).

Remember that the rush of owning some new toy is an emotion and not logical thinking.   The pleasure of having the newest and latest and greatest is fleeting at best.  And to continue buying brand-new cars and cell phones is not an affordable proposition for anyone but the wealthiest of Americans. 

Middle-class Americans can pretend they can afford it, by borrowing money, but in the long-term, it is not sustainable, as they are basically decreasing their net worth (or failing to increase it by much) over time.

Ask yourself these questions, the next time some bright shiny bauble piques your interest.  If you step back from the transaction, you may find it less appealing, the more you think it over.

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