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Things I've Learned

September 23rd, 2012 at 04:42 pm

Like most Americans, I was never really taught about finances. I was shown how to balance a checkbook, but when it comes to investing, saving, credit, or myriad other financially-related items, I was completely ignorant. I knew so little, I didn't even know where to learn about any of the things I knew I was deficient in.

I've always been smart. Why was it I knew nothing about money? Because I was so ignorant, I didn't even know where to start looking to get the information. Due to this, most things I know about money, I've learned by doing the wrong thing for the right reasons. This post is to illustrate my mistakes, and the corrections I now make as I pass 50 years of age.

Buy Quality
I used to shop around for the best prices on furniture, appliances, on everything, really. My idea of a good deal was finding something that cost less but did the same job.

What I have learned from this mistake is that spending $200 three times over 6 years is actually more expensive than spending $500 once in 10 years. Find items that are well-made using good materials. Solid wood furniture is worth at least 3X what the glued sawdust furniture you get at Wal-Mart costs, and even 10X more if you buy something with a dense grain. It will just last longer. Same with buying a name-brand, researched refrigerator or car. Buy something that is well-made, but feel free to buy used or to bargain for the price.

Everything is negotiable
When you find that the TV you're looking at getting to replace your old TV is the last one they have and a display model, you should be thinking, "Opportunity!"

Managers are busy people. They have to be concerned with all of their employees, their stock levels, their profit, their sales compared to last year, and customer satisfaction, among other things.

Managers don't really have time for every customer, so they are more inclined to find a fast answer, as long as it balances a few of their objectives. Due to this, they are more inclined to cut a few percent off a sale so they can get back to their "real" duties. So, when making large purchases, find a reason to call the manager and ask for a discount.

The last item or a display item are ideal for this. If you have kids, your stuff will be scratched or damaged cosmetically at some time. Go ahead and purchase something that's gently damaged cosmetically, especially if the damage "doesn't show." The side of a dryer can be scratched or slightly dinged, but you'll never see it, for instance. Ask for a discount. If you get it, you just "made" money.

Get Yours
The first two houses I sold, I had to make realtor-suggested improvements before I put the house on the market. These were little things, but I realized that I could have paid for these improvements earlier and lived with the better house rather than preparing a better house for my buyer. Now, I make improvements and repairs and upgrades as soon as I can.

Get Paid for What You Do
This is similar to the paragraph above, but it doesn't pertain to salary or wages. What it means is that you should make improvements that pay you back.

I spent $25K at least 5 years ago to install insulation and other improvements in my 1950's bungalow. This is a no-brainer, but most people in my neighborhood have not yet done it. I now save at least $200 per month on my energy bills (in the Houston summer). I figure I'm no more than $15K down just counting the insulation. If you add the AC unit, radiant barrier, ridge vents and windows, I'm no more than $5K down on my improvements. On top of this, my house value is at least $40K above where it would have been without the improvements. The longer I keep the house, the more money I'll "earn" on these improvements.

Don't Spend your increase
The easiest way to get breathing room in your budget is to ignore bonuses and pay increases. Sure, you got $10,000 more this year over last, but if you keep the same budget, this is an increase. If you now decide you can afford that $35,000 car, you've actually lost money.

This can also be applied on a debt repayment plan. If you retire a $150 payment, use $30 to reward yourself each month - to get breathing room - rather than adding the entire amount toward the next bill. Of course, if you're like me, you only do this on occasion. When I get a bill, I put every penny I can find toward it.

I realize this sounds counter to the title, and I guess it is, but what I mean by this is to not spend all of your increase just because you can. Instead, save part of it rather than seeing all the new stuff you can finance with it. You should still reward yourself for your gains, but don't use it all for "new stuff."

I need it
This is how my wife and I decide we shouldn't really buy something. When we see an impulse buy item, we'll tell each other in a very effusive voice, "I need it!" We then laugh and walk away. Most stuff you buy in this manner is absolute crap. Why buy something you're not going to really use or enjoy?

Debt is Dumb
Debt means "I want this so badly, I'm willing to pay more for it than they're asking." The one SLIGHT exception to this is a home, but that's only if you buy below market and the value increases. That's not what has happened to most purchases made in the last 8 years.

Debt means you're impatient. I wrote a spreadsheet to show that saving and buying later saves you thousands of dollars, even at 6% payments with 2% savings interest. What it normally means is you buy later for MUCH less. What normally happens is people are too greedy and impatient to wait until they get that new car, boat, or ATV.

Just save until you can pay cash. You'll be surprised how often you then decide NOT to buy and to use the money for something "better" like retirement, a home, or college for your kids.

Do you really need a new BMW today?!

5 Responses to “Things I've Learned”

  1. rob62521 Says:

    You cannot be blamed if you didn't know any better on finances, but because you are so smart, you now realize how important it is to learn. That speaks volumes?

  2. wowitsawonderfullife Says:

    This is a great post! I'd love a BMW but I can only afford a Mom van.

    My parents argued about money every day of their relationship. Learning about money is the only way to break the cycle. I'm very impressed with your ability to capture all of the issue we newbies face. Thanks.

  3. gotthedeclutterbug Says:

    This sounds really sensible.. good work!

  4. Wino Says:

    Rob,
    Sorry I said it that way. I used to just say, "I know math, but I don't understand money." I think you just gave me an idea for a new blog post, closely related.

    Wow,
    You can afford a BMW, only not "right now." The point is to save for what you want, then buy it. You'll also get it for a discount. Pay the $20 or $40 to find out a dealer's REAL cost, then add $500 to that. Go into the dealer with the knowledge you don't need a loan or a trade in, and find the car you like. Once you find it, play hardball. I usually start with, "OK, let's get one thing straight: our negotiations are for the bottom-line price. We'll assume I pay you that amount, and you hand me the title, and the transaction is done. Also, when I come to contract closing you're going to send me into a room with some lady who is going to try to sell me pin striping, extended warranties, under coating, and a dozen other add-ons. I'm going to say 'yes," to absolutely everything she asks, but you're not getting ONE MORE PENNY than what you and I negotiate here. So, don't waste my time with that office trip, or I'll go to another dealer for this car."

    Clutter,
    It is from my own mistakes, and a couple of "aha!" moments. I've bought the Wal-Mart crap stuff. I've bought the car for too much and on credit. I've seen how much more I'm getting from a raise and immediately went out and spent it. But I finally learned. It took me decades to come to the point where I am now.

    Now, on to the new "rob post."

  5. LuckyRobin Says:

    Good post. I do think to a certain extent, like when your kids are small, cheap used stuff, hand me downs, garage sale finds, or free stuff is okay to have. Even some WalMart stuff is pretty well made if you look at it closely and make sure of it's pieces and parts in the floor model before you buy it, just not the flimsy stuff (We had a WalMart combination dresser/wardrobe/television stand for many years that was still in really good shape when we sold it last year, the thing was solid). We didn't buy nice furniture until our kids were old enough to treat it with respect. Now that they are older we have good quality wood furniture that will last a lifetime (probably longer than that) in the bedrooms and kitchen and an excellent quality sectional in the living room that should give us another 15 years of heavy use. I'm all for quality when it does you the most good in life, but you can find solid and decent where you least expect it if you look hard enough.

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