For the last two weeks we’ve been building a thought process for how to make good purchases. As we conclude this series, I think it’s only appropriate that we finish the job Captain Kirk style, with “warp speed”. But first, let’s make sure we understand the definition of life hacks………….
Life Hack: a strategy or technique adopted in order to manage one’s time and daily activities in a more efficient way.
And, just to recap parts 1 & 2 of how to make a good purchasing decision…….
Part 1: 3 Components to Engineer Your Thinking
1. Clarity of Ownership-understand your role in earthly ownership.
2. Establish your FLG (financial life goal)-establish a clear financial target.
3. Develop a spending plan, a budget; set the boundaries for your purchases.
Part 2: Shields Up! Put up the deflective shields around your purchasing decisions by asking two questions:
1. Is it a need or want? Decide if it’s a “need” or “want”.
2. Is it in the budget? If it’s in the budget (need or want)…you purchase it.
If it is a “need” not in the budget, use the emergency fund.
If it’s a “want” not in the budget, DON’T PURCHASE IT!
So, now we’re ready to look at……
Part 3: 5 Life Hacks to maximize your purchases for “warp speed”
Hack 1: Understand all the costs associated with your purchase.
Start the actual purchasing process by understanding the true cost of the product. Often times the posted price is not the true purchasing cost. Consider the shipping, taxes, product longevity, replacement part cost, depreciation, accessory requirements and associated contract/dues/membership requirements when evaluating the best purchase price.
Example: Cell phone companies offer “free” or low cost phones. However, when you apply Hack 1 you’ll quickly discover additional taxes, possible replacement cost, additional accessory requirements and an extended contract. A free phone then becomes a budget buster.
Hack 2: Comparative shopping is a must. Good purchasing decisions require us to evaluate similar products by using comparative shopping. First, establish similar product quality. Be careful here, because those 5,000 promotional spots we are hit with every day jade our thinking. Secondly, analyze the product cost by finding a comparable unit price, i.e., matching unit size, piece price or cost per ounce. And third, factor in your lifestyle in the end product cost (a gallon of milk will initially cost less per ounce than a quart of milk. However, if the gallon spoils because you didn’t drink it before it went bad, it will end up costing more than the quart).
Hack 3: Replace a “now purchase” for a “future opportunity”. Before pushing the button on a “now” purchase, ask yourself, “Is there a future opportunity I could gain by forgoing this purchase, even though it’s in the budget?”
Example: You may recall my blog on the $100,000 water glass. By exchanging a $2.25 “now” beverage purchase I could create a $100,000 opportunity in future.
Hack 4: Get creative. Let’s say you’ve worked through this entire process, you’re now ready to make the purchase to fulfill a specific need. I encourage you to hit the pause button and then flip on your creative switch to explore your options for a more efficient purchase to fulfill that specific need. It can be as simple as making your own cleaning solution for a fraction of the cost of a name brand product, or purchasing “gently used” high end furniture for pennies on the dollar.
Hack 5: Apply the 5% rule. The last thing you do before you commit to any purchase is ask yourself this question, “How can I improve this purchasing decision by at least 5%”? I truly believe over a lifetime by applying the 5% rule to the last step of the purchasing process, we can generate significant financial results. And, in most cases the 5% rule will generate more than 5%.
Practice, practice, practice. With a solid thought process we can consciously and eventually sub-consciously train our minds to make good purchasing decisions almost all the time, if not all the time.
If you control your purchases, you control your wealth building.
If you control your wealth building, you control your financial dreams.
If you control your financial dreams, you are destined for an “uncommon life”.
Seize the controls and issue the command, “Take us to warp speed, Mr. Sulu”.
See you next week.