Monday, March 15, 2010

Buyer Be Thorough

Caveat emptor (buyer beware) is ancient advice and certainly qualifies as common sense. Since today's purchases can be complex contracts with multile decision points, there can be many places where you need to pay attention. For somplicity sake, let's consider four distinct groups.

The Purchase

This is where every transaction starts, and the advice for it is old, tested and trustworthy.
  • Know what you really want ahd ask for it.
  • Know what you are willing to pay before you negotiate.
  • Be ready to say no and walk away.
There is nothing new here. Just keep your coat on and your credit card in your pocket.

The Upsell

The hamburger principle: condiments (ketchp, mustard, pickles, onions) are free.

The pizza principle: each topping is extra, certain combiations offered as packages.

The more expensive a product is, the more likely upsells will be attempted, cars, boats, homes and electronics are filled with upsells. There is nothing wrong with an upsell -- it may be what you want. My pizza is topping-heavy because that's what I want. Look at each item and eah package as a seperate transaction. Know what you want, know what you are willing to pay. Hold the anchovies and ask if the onions are a condiment or a topping.

The Extended Warranty

In  Swim with the Sharks Without Being Eaten Alive: Outsell, Outmanage, Outmotivate, and Outnegotiate Your Competition (Collins Business Essentials) Harvey Mackay says "if you can afford to buy your way out of a problem, you don't have a problem." An extended warranty is not an upsell because you get no new features. They ar a form of insurance -- pay now to manage a problem you may or may not have later.

Unless your lifestyle or intended use is hazardous to the product, my rule of thumb is nver buy an extended warranty for a product you can afford to replace. Keep the warranty money in a safe place and use it to replace the rare item that fails with something new. Insure yourself, save money, and get a new product if somethng does fail instead of the older model which has already shown it can fail. On the other hand, if the extended warranty is free, take it.

The Money Back Guarantee

We all take card for test drives. It only makes sense. If a product offers a money back guarantee, trat the guaruntee as a distinct item. Note the terms and conditions of the guaruntee and evaluate the product as the guaruntee period comes to a close. If you aren't satisfied, ask for your money back.


Shopping can be a fine hobby, but buying should always be a business. If you are buying a contract insead of a product, tehre is much more to think about than just the bottom line.


The Aladdin Factor  Swim with the Sharks Without Being Eaten Alive: Outsell, Outmanage, Outmotivate, and Outnegotiate Your Competition (Collins Business Essentials)

Friday, March 12, 2010

Rocks in the River

Here's the truth about white water rafting:

  • The rocks are already in the river
  • The water will barely notice your raft.
That said, there are things you can control (or at least influence):
  •  You get to choose the river and when you take the trip.
  •  You get to choose what you do to get ready.
  •  You can invite others, but they can say yes or no.
  •  You get some choice over the raft and the guide.
Life is a lot like that:
  • The rocks are already in the river. Problems will show up, and most of them will be at least partly visible in advance.
  • The water will barely notice your raft. Most of what you do is not going to be noticed by the rest of the world.
  • You get to choose the river and when you take the trip. When you make a choice, you enter a river. Big choice, big river.
  • You get to choose what you do to get ready. There is no substitute for preparation and planning.
  • You can invite others, but they can say yes or no.
  • You get some choice over the raft and the guide. Look for a good mentor before you launch the boat.
Either way, the point is to enjoy the ride.


Wednesday, March 10, 2010

Automate Your Savings, Not Your Finances

I am a big fan of "pay yourself first," a concept shared in many books from The Richest Man in Babylon to THe Automatic Millionaire. It took me a moment when someone suggested unautomating finances to realize he was making a valid point -- a point I want to share with you today. Saving should be automatic, Investing should become automatic, and spending should be entirely manual. Let's examine all three points.

Saving should be automatic. This is the heart of paying yourself first. If you can divert 10% of your income into a savings plan, the consequences over a lifetime are spectacular. The keys are to start as early as possible and to be as aggressive as possible in your savings program. I first did this by continuing to live at my current level after I was given a raise. The raise itself went into a tax-sheltered savings program which turned out to be a lifesaver a couple decades later.

Investing should become automatic. Have you ever noticed that when apolitician talks about investing in the future, he's talking about spending money we don't have to implement something later generations may benefit from but will certainly pay for? On a personal level, investments are a long term strategic decision. THey need careful consideration, periodic review, and -- if you can get it -- expert advice. You want your automatically generated savings to fund your investments, but don't put everything in automatic until you've applied due diligence.

Spending should be entirely manual. I had always known this advice, but hadn't really said it that way before I heard about unautomating finances. While I believe in a life of convenience and comfort, putting some pebblres in the way of automated spending is probably a good thing. Here are a few things to watch for:
  • Habitual spending -- David Bach tgalks about the Latte Factor, money you spend routinely without thinking about it. If you take the time to think, you'll be a lot less likely to make coffee a ritual.
  • Subscriptions -- pay attention to how often you read magazines or take advantage of things you buy through a "xxx of the month" club. If more than half go unused or aren't really appreciated, shutting the automated cash flow of the subscription off or down may make sense. If you pay for hundreds of TV channels, does the cable company have a cheaper package you can live with?
  • Watch your credit spending. Credit scards make spending easy, they don't make paying for it easy. Using credit you will pay in full before interest accrues is okay, but even then when your fingers reach for plastic ask your self if thius expense is necessary.
  • Unshop aggressively. Don't be afraid to return something.
Finally, paying a credit card is not spending. If you cannot pay completely when the bill comes due, keep the card in your pocket until you can. When you don't pay off the card, you are buying a lending service. You are spending more by not paying than you are by paying. Credit should be something you have but rarely use.

Friday, March 5, 2010

Dealing With Big Changes

We live in an uncertain world where we are forced to make decisions with less than perfect information. Even if the information we got was good when we got it, the situation may have changed. If it hasn't, it almost certainly will. With lives, fortunes and families at stake, decisions can be stressful. Several years ago, I came up with a rule of thumb to help me. I hope it helps you.

The rule is this: don't make big changes for small reasons. When the consequence of a change is big, your reason for doing it should be big too. 

I like this rule because it encourages me to consider consequences directly. Is a decision likely to matter in a year, or two, or ten? If so, it qualifies as a big decision. If not, I may be fretting over something unimportant. Some decisions are clearly big ones, others clearly small. The rest may or may not, but a little thought will probably allow you to decide.If not, it is probably a big decision.

Next I consider motivation. What is my reason for making the change? Am I achieving a life's goal (big)? Am I reacting to something I don't like but might be able to change (small)? Great things can happen with enough motivation, but each of us scores motivation differently. 

Let's consider a deliberately unclear example. Imagine that you are offered a new job at a different employer for a modest but not great pay increase. Do you accept the offer? Different people will answer this question differently precisely because they measure consequences and reasons differently.

Depending on your situation, a job change can be anything from a modest change to a huge one. To answer this, look a few years out and consider who else is affected. Trust yourself and get the best information you can. Changing the kind of work you do or moving to a new home will tip the scales toward big. 

Now consider your reason for changing. How much money is involved? What are the prospects at the old and new job? Are the people at the old or new job a factor? Is the reason big enough to justify the change? 

This rule is rarely going to cause you to decide against a potential change. More often, you will see that the consequences aren't as daunting as you thought (not so big) or that your reasons are big enough to justify the action. Either way will lower your stress and make you feel better about your decision.