spending wisely

Good Reasons To Spend Money

February 27, 2010 By David G. Mitchell 9 Comments

There are a lot of reasons to spend money and each of us has his or her own. Our attitudes and perspectives are forged over lifetimes spent earning and spending and enjoying and regretting. I can look at any number of purchases and feel that I have made a good buying decision. I can look at a similar number and know that I made a mistake. Fortunately, the older I get, the greater the number of good decisions so I hope I am on the right track.

This past week, for example, I bought a gravity tea pot and a pound of loose leaf tea from an out of state vendor. For the past forty-plus years, I have been a tea drinker, but the tea was always delivered in a tea bag. Although I enjoyed it, I now recognize that the tea I bought in the grocery story was not particularly flavorful. I enjoyed it, but I did not enjoy it as much as I might have. A couple of weeks ago, however, I discovered Tavalon Tea at a local bakery. I was hooked from the first sip and found myself “needing” at least one cup per day, at $2 per cup. I also found myself enjoying the experience of watching the tea drop out of the bottom of the gravity tea pot that the bakery uses to brew the tea.

After spending about $20 on tea within a week, I knew I needed to find another way to get my tea fix. I found the Tavalon website and learned that I could buy a pound of New York City Breakfast Tea for $28 plus shipping (about $5). That works out to about 27 cents per cup. If I purchase in greater bulk, the price will drop to 22 cents per cup. I also bought a gravity tea pot from a local vendor for $15 and can enjoy the novelty of it when I brew my own tea. With the tea bags that I bought in my local store, by comparison, I paid about 14 cents per cup so there was still savings, but the value of the experience was far less. Given that I drink about 15 cups of tea per day (at a minimum), I want the experience to be good and the value to maximized. I think I have found that.

There are a lot of good reasons to spend and one huge reason, in particular, not to spend. Here are some of my spending guidelines, developed over forty plus years of purchasing mistakes:

Buy Because You Need It: He who dies with the most money in the bank is still dead. It is not worth a bizarre obituary that talks about all of the money that you have left stuffed in your mattress. If you have considered your needs and determined that you need something, go out and buy it if you can afford it. Don’t be frugal to a fault. Whether “need” means groceries or a night on the town is irrelevant. Know what you want and buy it if you can do so responsibly.

Buy It Because You Want It: Sometimes, you want a new toy. That’s OK. If you have disposable income and buying a new toy is not taking food off the table, buy the toy. Some of you can afford a new car because you have been frugal for the past ten years. Go out and buy it if you want it. Others might want to take a nice vacation. Maybe a new toy means a new iPod or something smaller. Whatever it is, buy it and enjoy it if you can do so responsibly.

Buy It Because You Have Better Things To Do: Sometimes, I will pay a few extra dollars for something that I do not really need to buy, but that will save me time so that I can work on a money-making project. If I need to cook dinner for my family but I know that take out will cost $30 and a project that I can finish for a client will earn me $300, the cost of take-out becomes a cost of doing business.

Don’t Buy It Because You Are Lazy: If I continued to purchase my tea at the bakery, it would have been lazy of me. I took the time to order my tea and to get my tea pot. Now I will save close to $1.75 each time I brew a pot of tea. If I had continued to purchase tea at the bakery, it would have been lazy of me and a waste of both time and money. Now I can enjoy my tea and feel that I have made a better buying decision.

What have you learned about spending over the years? What can you share with us to help guide better purchasing patterns? And if you can recommend a good source for loose leaf tea, let us know that, too.

Five Ways To Spend Your Money Wisely

June 11, 2009 By David G. Mitchell 8 Comments

My family and I have lived in the same house for close to a decade. When we moved here, there were six palm trees on our rather small lot, and I could trim all of them on my own. A few years ago, several of the trees had grown to a height that was just too high for me, so I had to hire a tree service to trim the trees from their extension ladders. As of this past year, two of the trees had grown so tall that they could only be trimmed by someone using a cherry picker like the type that utility workers use. If I were to trim the trees twice per year, it would cost me about $1800 per year to trim my trees!

Needless to say, despite the protests of my homeowners’ association, we are allowing the trees to enjoy a more natural, untrimmed, look for the time being. Of course, I can only blame myself. I was a first time home buyer when we purchased our home, and neither my wife nor I had ever lived in a tropical climate before. I did not know what to expect from my palm trees and I foolishly did not think to ask.

Have you ever considered how many purchases you make every year for which you do not really have sufficient information on which to base your purchasing decision? If you purchase a new TV, do you really know that you are getting the best value for your money? When you buy a car, are you sure you are getting what you think you are getting? If you are shopping for an appliance or a pet, do you know what questions you should be asking before you get to your actual purchasing decision?

I recognize that there is a steep learning curve associated with spending one’s money wisely, but here are five ways to answer your questions, and even to identify the right questions to ask, before you are actually face to face with a sales person.

Ask your family and friends about their purchasing decisions

Whatever you may be purchasing, ask your family and friends about their experience in buying the same thing. Thinking about buying a new appliance? Send an e-mail off to everyone you know and find out if anyone has any experiences that they might want to share. Considering changing brands of shampoo? Call your hairdresser and find out what he or she thinks. Looking at a new set of golf clubs? Call the golfers that you know and seek recommendations. You have a huge consumer network at your finger tips if you just reach out to the people who you know best and who know you best.

Research your purchases on-line

There are a multitude of on-line resources available for shoppers. If you are considering a purchase, visit e-commerce sites like Amazon.com and read customer-generated reviews of the product before you make your purchasing decision. I also very much like epinions as a source for generally unbiased consumer reviews on a host of buying decisions. Of course, Consumer Reports is also a great research tool — both on-line and in print.

Talk to all of the people who will be using the item that want to purchase

Before you make a purchasing decision, consider who will be using the item that you are purchasing. Make sure that each user wants the item for the same reason. If you bring an item home and it lacks functions that are necessary for the happiness of one or more users, you will have wasted a lot of time and possibly a lot of money.

Comparison shop at more than one store

Talk to sales people at more than one store. Do they tell you the same things about the same products or do some sales people like one product more than another competitive product. If you hear a lot of different stories and opinions about a product, it is probably for the best if you do not purchase it.

Don’t make major purchases from sales people who you do not trust

Even if you are sure you want to buy a product, make sure you only make major purchases from a sales person you trust. If you do not trust the sales person, it will inhibit your ability to ask questions and you will not be fully confident in the answers that you receive to your questions. Trust is key. If you do trust your sales person, ask him or her to produce documentation on the expected life of your planned purchase and on expected maintenance costs, if any. Also, ask for the sales person’s candid thoughts on what you should be purchasing and why.

Have you made any purchases that resulted in unexpected costs for you months or years later? How do you collect data about major purchases before you pull out your credit card to close the transaction? How do you determine whether you can trust your sales person?

(Photo courtesy of Chris Lott)

Ten Ways to Help Your Kids to Spend Wisely

August 28, 2008 By David G. Mitchell 6 Comments

Kids often view cash and gift cards as things that need to be used immediately. I recall how my now grown son spent all of his birthday money within two days after he had received it, often wasting it on things that he never used. When I voiced concern or suggested that he might want to save his money for a rainy day, he would tell me that it was his money and that he should have the right to spend it. I did not argue with him. Unfortunately, by the time my son was in high school, he never had any money to spend on events with his friends or to buy music downloads because he was so busy with school work. He has learned the error of his ways and is a responsible adult, but he still regrets not having listened to me earlier.

Fortunately, my older son eventually learned from his mistakes. I did, too. With my younger son, I began teaching him about saving and inculcating a much smarter money sense from a much earlier age. He listened and by the time he was in high school, he was able to enjoy having more of his own money than any of his friends. His new goal, however, was not to waste his cash but to by a condominium before he starts college so that he can live in his own place while he goes to school. Here are ten steps that I used with my younger son that, in general, I wish I had also employed with my older son.

Do not be free with cash with your young children

Kids learn very quickly if they will get a free ride and it is very hard to break that conditioning. If you buy a piece of candy or a toy to keep your child quiet when grocery shopping, the child is only going to get louder the next time you shop, until you buy him another item. Over time, the items will have to be more expensive or more numerous and you will be trapped between wasteful spending on the one hand, and a vocal and embarrassing argument with your child on the other. When a child learns that he has the power, the game is lost.

Most kids would rather play with you than play with a toy that you buy them

The next time your child asks you to buy something, tell him that you won’t buy the item but that you will play a different game or watch a movie with them when you get home. We played many games with our kids when they were growing up and they were much happier with the time we spent with them than with any money we ever spent. It also made us a much more closely knit family. If you do not have time to play with your child “on demand,” just let him know when you will play and keep to your promise. Kids can learn to be patient as long as you do not let them down.

Discourage your child from having wasteful hobbies

My older son went through a phase of collecting Pokemon and similar trading cards. I would not buy them for him (except at Christmas or his birthday) but I did explain to him that there would come a time when he really regretted wasting his money on cards that he ultimately threw away. I was not an ogre about it, but I did explore with him why he was buying the cards and the answer was generally because “everyone else buys them.”

After about a year, he was willing to admit that he did not really enjoy the cards and he stopped buying them. To this day, he does acknowledge that learning not to spend money on those cards was the first sensible financial decision he ever learned to make. Ultimately, you will often know your child better than he does. If he is wasting money, you need to talk about it with him so that he can learn from his mistakes.

In contrast, you should encourage your child to have productive hobbies

If a child has a hobby that he really embraces, it will encourage your child to spend his money wisely and to save his money to sustain the hobby. When I was a child I started collecting baseball cards because I could see that the price of the cards was going up every year. I collected until I got out of high school and then sold my cards to pay for a half a year of rent when I was in graduate school. My younger son collected Christmas village scenery and he really looked forward to setting up the village under our Christmas tree. He would save his money each year and then buy one village piece (usually waiting for a good coupon to appear in the Sunday paper before buying). He still uses and collects the village pieces to this day.

Emphasize activities that do not cost a lot of money

With my younger son, I also discovered that there are a lot of hobbies that do not have to cost a lot of money, but which can offer a great return. At an early age, my son started collecting sports collectibles. We would go to NFL training camps and spring training baseball games and try to get as many autographs as possible. He now has hundreds of autographs which would cost him thousands of dollars if he bought them today. Instead, he paid only for the items that we got autographed, most of which he bought very cheaply on eBay.

Enforce a savings regimen on your child

I told my younger son that I would give him $10 every week as long as he did not ask us to spend any of the money. I explained how banks worked and the concept of interest. We went to the bank every week to deposit his money and he enjoyed both the act of going to the bank and in seeing his money grow. When he had enough to put his money in CDs, we started buying CDs and he learned that different investments gave different returns. He also started putting more and more of his money into the bank (from birthdays, Christmas and odd jobs). By the time he was 10, he was getting more than $500 per year in interest and he realized quickly that without doing more work, he had doubled the value of his $10 per week allowance (which he also renegotiated to $15 per week — He also tried to start loaning money to his older brother at high interest rates but we managed to put a stop to that before it had even started)

Avoid Movie Rentals

Movie and game rentals are a huge cost. Even without late fees, trying to track return dates was always a pain. In our neighbourhood, the movie/video game rental store is about a quarter mile from the local library. We showed our kids that they could borrow movies for free at the library or pay for them at the video store. We also told them that we would take them to either place, but that they would have to spend their own money. The library won out.

We also did get a digital video recorder for our house and told our kids that they could record up to 10 hours of TV each. With a backlog of 10 hours of TV on hand at all times, and the library around the corner, they never had a need to rent.

Teach your kids to use the computer

Even my son who had a hard time controlling his spending embraced the computer at an early age. All of the tools that we, as adults, have learned to use to save money can benefit kids, too, especially when the benefits are viral in nature. Coupons, rebates, referral rewards and all other savings tools that you use should be passed on to your kids as soon as they are old enough to grasp the concepts. Don’t just find the deals for them. Rather help them to find them for themselves.

Involve your kids in household shopping

Make necessary shopping a family experience. Don’t just make your kids come to the grocery store with you. Make them a part of the experience. If you do it from an early age, they will learn to enjoy the process and it will also help them to feel like they are spending when they are not. Also, let them help you plan your meals and listen to them when they ask for a new product. If the product does not cost more than an alternative that you would otherwise have purchased, give them the satisfaction of trying the new product. I also used to let my younger son buy anything from the produce aisle as long as he promised that he would eat it. He learned to appreciate a lot of fruits and vegetables that most of his friends would never have touched because he was the one who was doing the shopping.

Don’t be a miser

Kids are kids. They will need some distractions and you need to help to provide them. Give them enough toys and experiences, within your means, so that you can credibly and honestly tell them that they “do not need that” or “do not need to do that” when they ask. Also, sometimes your kids will ask you for things that they actually should have or should do. When they make an intelligent decision, help them to pursue it, whether it is with their own money or with money from you.

Remember that the point of teaching kids to spend wisely is not to save your money, but to teach them how to spend their money. If you do not balance savings with an occasional indulgence, your kids will not learn from you and you will probably not have a lot of good memories to look back on when the kids move out.