Monday, 7 January 2008

How to save money

With recent posts discussing ingenious ways I would like to spend my money in, the question quickly turns into – how do I prevent myself from wasting money buying stuff?
To me the answer seems simple: analysis.
The main cause of shopping agony (and consumerist waste) is impulsive buying. We know how that takes place, so let’s have a look at what should happen instead.

Step 1: Identify a need.
For example, a valid need for me is to be able to improve the quality of the photos I take, especially the photos of baby Dylan. In the past I never paid much attention to portrait photos, focusing on scenery and objects instead; now my focus is changing, and I feel like an improperly tooled tool when it comes to taking baby photos.
Step 2: Analysis.
What can I do in order to address the need I have identified in step 1? One way of acting is to change the way I have been doing things so far. For example, I have found that by using spot metering on my existing camera together with higher ISO settings I can get significantly better baby photos without spending a cent.
Another way to address the need from step 1, but only just another way, is to buy a product – for example, I could buy a lens with shake reduction that will allow me to take significantly sharper photos.
If money spending is involved then a cost/benefit analysis is mandatory: it would be stupid to spend thousands of dollars on improved baby photos, for example, if taking the baby to a professional photographer for a few hundreds of dollars would address the previously identified need. By the way, in my case the professional photographer solution does not satisfy the need because I like photos exposing day-to-day life rather than posed ones which do not tell me a thing about the subject and what takes place in their lives.
One thing I usually find when performing cost/benefit analysis for potential purchases is reconfirmation of the rule of diminishing marginal utility. For example, the benefits I would get from investing $1000 in a lens are far inferior to the benefits I was rewarded with when I spend my first $1000 on a camera kit.
Step 3: Solution detailed design.
In this step I decide how I would best implement each of the options I have identified in the analysis stage. For example, if a lens is indeed the thing that would solve my need to improve my photography, then which lens would suit me best? What is the best way for acquiring it?
More and more, the web is becoming the better way to acquire gadgetry. There are, however, issues to be concerned about with web purchasing: warranties, for example. The more expensive an item is, the more justification I have to search for the best way of acquiring it: the ten minutes I spend on the internet to cut $50 off the buying price are definitely worth it when it takes me two hours of my way too short life to earn those same $50 (and that’s without counting overheads).
Another thing that’s important to bear in mind when designing a detailed solution is to try and imagine how your life would be like after you have implemented your preferred solution. For example, if I was to buy a new lens, would I use it in the first place? Would I be bothered to carry it around? Would it fit my existing camera bag, or would I have to buy another camera bag to fit it in, thus significantly increasing the effective cost of the lens? This step is a test of one’s imagination. Most people completely fail here, which is exactly why printer manufacturers sell you printers at a loss and then rip you off with ink cartridges (to name but one simple example).
Step 4: Purchasing, if required.

I admit there is a way too thin a line separating between steps 2 and 3 above, but the key thing is to be mentally aware of all the things that should take place when you consider buying something. If you have the discipline to follow the above steps then by definition your impulse buying would be significantly reduced and, more importantly, the quality of what you do end up buying will rise exponentially: you will use and like what you do get much more. You will be better satisfied. You will be a happier person!
Obviously, the number one criticism towards the analysis approach specified above is that it’s tedious and that it makes a big fuss out of nothing. In short, implementing the above advice would get you labeled "tight ass". Well, my answer to that is that if it was really about nothing then there is nothing to worry about and we could all spend infinite amounts of money on anything our eyes gaze at; it is obvious that this is not the case and that discipline and rational are due.
I will also add that sometimes you can use the above technique in order to justify impulsive buying: especially when I’m traveling, I often tell myself that the emotional benefits I would acquire from reckless money spending is well worth the cost. The main difference is in the awareness: having performed the cost/benefit analysis, I can rationalize impulsive buying. If I end up finding that I was wrong I can write myself a mental note to improve the algorithm I have used for deciding how much happiness can be derived through reckless spending (and for the record I will say that I think the answer is very close to zero).
More importantly, I find the entire exercise of purchase analysis to be even more interesting than the purchase itself and the use of the purchase item. If you do have a problem rationalizing your actions then please explain this to me:
What is wrong, exactly, with stimulating your mind to think a bit about what it is that you are about to do? Who knows, if you start thinking about the things you are to buy then you just might end up thinking about lots of other great, much more important things.

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