By default, most of us would make impulsive purchases. We see it, we want it, and we purchase it. There is a satisfaction in satisfying the need quickly.
However, if we cultivate a different habit, we can make thoughtful purchases our personal norm.
On Friday, July 8, 2022, Megan Russell was interviewed by Michael Morton of Financial Planning for Entrepreneurs podcast . Michael Morton is the founder of Morton Financial Advice where he provides hourly or subscription-based financial planning and wealth management.
In this two-part mini-series, we discuss the two sides of learning how to shop more effectively. Last time, we talked about how to spend less money. This time, we discussed how to buy more value by being aware of where you are spending money.
The episode was released on Tuesday, August 9, 2022. You can listen to the audio here:
- Economists write a lot about deadweight loss, which is the difference between the price paid for an item and the amount of value that is received. Something costs $50, but ends up only being worth $10 to you. The $40 of value that disintegrated is the deadweight loss.
Set up spending alerts.
- As a first step, login to all of your credit cards and bank accounts, go to the Alert Settings (sometimes found under Profile Settings) and give yourself an alert any time a transaction is greater than $1.
- With these alerts on, you will be aware of both your automated charges and your mindless spending. It will help make spending money uncomfortable without immediately making it inconvenient.
- We are wired to worry about the size of a purchase, but the frequency matters even more.
- Over the course of a year, one $500 purchase is less spending than $50 a month.
- Automatic spending is subscriptions, automatic withdrawals, and habitual spending.
- Automatic spending is rhythmic, easy, and painless.
- Manual spending is patchy and uncomfortable. It requires focus, but it also saves you from wasting your labor.
- Record the price, location, and name of the product.
- The goal is to make it hard for vendors taking advantage of you and to know when it is a bad price.
- The goal isn’t to find the absolute best price.
- The business model of some Amazon sellers is to buy in bulk and then resell in small quantities with a surcharge.
- By going to the original manufacturer, you can often get the bulk prices.
- Money earned from returned items is as good as money earned initially.
- The longer you own something the more it starts to feel like yours. This is called “the endowment effect.”
- Look at new items with a side eye and think, “Do I really want you here?”
Photo by author, Megan Marotta Russell.