A few weeks ago, I read an interesting piece from Allen Tucker who says that it’s best to pay too much. After so many technological progress and the economic phenomenon of globalization, we all expect to pay less, not to pay too much. This concept is totally counter intuitive. Nobody wants to pay too much for something. When you compare what you have with your friends or your neighbour, you always want to be the one who got the deal.
I’m the first one to be frustrated when I pay a premium on any goods. If I buy a TV, car or dishwasher, I have this stupid tendency to check flyers and rebates for a month following my purchase. When you think about it, I’m not adding any value by doing this. At best I’ll be wasting an hour or so checking for potential deals that I can’t even benefit from and at worst, I’ll find a better deal than I paid and be frustrated.
On the other hand, this “after the fact research” process is only the last step of a bigger process. Each time I have to make an important purchase, I take about a month to identify exactly what I want and establish what the market price is and what is a deal. So far, so good, I’ve been either lucky or just do a good job at researching the right deal in the first place.
Here’s an interesting twist. I truly hate to pay too much for something, but keep paying too much all the time. How’s that possible? Because I value things I buy and don’t want to go cheap. That was Tucker’s point when he says that he is paying too much for many goods he buys. It makes sense when you think about it: if you pay a higher amount for something, chances are that you are getting more quality and durability. What if you buy something and pay more than the average but it lasts a lot longer? Would it make more sense? I find that quality overcompensates for the price you pay Vs buying cheap stuff for the sole sake that it’s cheap!
Here’s a list of things where I really pay the price:
Suits – I’ve bought cheap suits and they don’t last and they look and feel like cheap stuff
Sporting Gear – I have had the same bike for the past 15 years
Electronics – I have the same TV for the past six years (my previous TV lasted 17 years!)
Food – It doesn’t last longer but I guess it will taste better!
Appliances – I have the same microwave for the past 15 years!!! My refrigerator is also pretty old and still running like a new!
Cars – I don’t go crazy with cars but I like them well equipped. It’s better for the resale value and way more comfortable!
Mattress – My sleep is not the same anymore since I paid $2,000 for a mattress!
The hard part in today’s consumer environment is that some times, expensive is cheap and cheap is expensive. On the other hand, you can also go cheap on some stuff and end-up getting a lot more for your buck. For example, someone who knows how to invest, buying index ETFs or doing stock picking could do well and save a 2% fee charged on mutual funds.
There is no free lunch in life; if you save on something, it’s because there is something you are leaving on the table. If you take the investing example; you save on the management fee but you are also leaving professional advice and financial planning on the table. If you don’t get the advice along with the plan and you are still paying the 2%, then you are not on the winning team. If you don’t need advice and financial planning, then you don’t need to pay the 2% fee. I guess it’s the same thing if I was able to make my own clothes; I wouldn’t need to pay for higher quality suits! So I manage my own portfolio and buy suits
I guess I’m more trying to optimize my money rather than save it!
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