Today, all but the most affluent and cavalier of us are mindful of our expenditures. We put off vacations, find ourselves eating in more often or eating our more economically, and, when we do spend money on necessities, we tend to think more about them before we cut loose of our hard-earned money.
So when we do this thinking prior to spending our money, how articulate is it? This question is key to how wisely we spend, how much we get for our money, and how much money we have remaining for our savings and investments.
An example: You drop your car off at the mechanic for regular maintenance. He calls back and tells you the car has an oil leak. It’s going to cost $1200 to replace the engine. After discreetly throwing up in your cubicle trash can, you wipe your mouth, thank him, and hang up the phone. 1200 bucks going out the door in one shot is going to rip your savings a new one, or max out your credit card, or both.
So what do you do? You take a deep breath and get articulate about your thinking.
The single most important question to ask yourself and others when faced with a necessary expenditure is: What are my options? And you always have options.
You call the mechanic back and ask him what your options are. He may tell you that he can change the oil and and give you a tune up for a hundred bucks. You will really need to keep an eye on the oil level as you drive the car in the next few weeks, he says, because it’s going to leak and run low. He tells you you’ll be able to do this for a month or two, but then, you’ll have to face the music. Or he may say, you really need to do this now, but you’re a good customer and I’ll do the work now and let you make payments.
Regardless of what decision you make about your car, asking what you’re options are requires the other parties involved to share more information; it shines a light on possibilities; it gives you a moment to think and make plans. Most importantly, it gives you the option not to panic and make a bad decision under pressure.
Furthermore, articulate thinking will result in a change in our vocabulary. When we’ve used the term “cheap” in the past to denote something that we believed was priced attractively, we will now refer to something as a “good value”, as we’re not only considering the price of something, but the price of it in relation to it’s quality.
From this perspective, “cheap” becomes less attractive, as it denotes an inherent lack of quality that many times goes hand in hand with a lower price. A “good value” becomes the focal point now. This is a new way of thinking. It is mental arithmetic that calculates the price of something, divided by the number of years it will be used. Add in the frequency of enjoyment or utility, subtract the operating costs of the item, if any, and estimate the possibility of obsolescence.
An example: you want or need to buy a pair of shoes for work. You can spend less money on a pair of shoes that are cheap, in every sense of the word. They won’t last long or look good long. You will enjoy them briefly. They will begin to hurt your feet because you’re wearing them often. There is no operating cost to this item, because they aren’t worth repairing. They will be obsolete soon–because they are “fashionable” and not of good quality–and you will go out again, searching for another new pair of shoes, and spend money again. That’s the math on “cheap”.
The math on a “good value” is more like this: you purchase a quality pair of shoes that may or may not be expensive. They look good and they feel good because they are well-made. You will enjoy them for a long time and wear them often because they won’t hurt your feet. Over time, there will be operating costs: you will need to have them shined, and the soles and heels will need to be repaired. You purchased a traditional style of shoe that will not go out of fashion. You may buy other pairs of shoes in the future, but you will wear and enjoy these shoes for ten or twenty years.
If you have stalked these shoes like a panther in the night, waiting for them to go on sale, and have purchased them at a substantial discount, that is, well, just really sexy to a lot of Old Money Guys and Gals. (Wink, nod.)
So let’s be more articulate in our thinking. It will make us wiser in our spending.
– BGT