Moneywise24 Personal Finance

I remember being in Kenya in 1998. We were on Safari, and on our way to the Masaai we stopped a few times in some smaller villages to fuel up the car and get a bite to eat. Whenever we stopped, there were loads of small trader, trying to sell their good to those who made a stop-over, usually tourists. Most articles where typical souvenirs, and I spotted a small ashtray I liked, made out of pottery and painted nicely. I started talking to the man, and we engaged in a bit of small-talk. Finally, when I asked about the price, he told me he wanted 1,200 Shillings (approx. 12 Euros) for it. I thought for Kenyan standards, this was quite a lot, and I started bargaining with him just like I read in the Kenyan tourist guide. After another 15 mintues, we finally agreed on 200 Shillings (2 Euros). Now that is what I call a discount.

I nearly forgot about this experience after I got back to Europe, until one day I went with a friend of mine to buy some food for her dog recently. She took everything she wanted to the cashier, and I believe the total bill was 40 Euros. And she spoke the maginal words: “Can we bargain something off the price?” I was a bit stunned, since I had never tried this in Europe, nor have I heard from someone doing it. But the salesperson at the pet shop replied politely: “of course we can! After all, I am a trader”. Now the newly bargained price was not as low as it was in Kenya, but I believed she bought the food for 35 Euros; that is 5 Euros for one purchase… and some dogs eat a lot of food.

I tried following the same principle, and during a month I asked many different salespeopel whether he would bargain. I did receive a lot of “no’s”, but also a “yes” a couple of time. Even my favourite shop, where I buy shirts, gave me a 8 Euro discount on 2 shirts, provided I would buy two and not just one. Since I buy at least 10 shirts per year, that is a discount of 45 Euros per year. It might not seem much… but as they say, small amounts also count.

Bargaining practices might be very different according to where you live; bargaining is more common in developing countries, or those with a bargaining culture than in the western world. Bargaining is more difficult in large metropoles than in smaller towns. However, I had a lot of fun simply trying it, and additionally I now know some shops which are generally willing to bargain and I know which shops do not bargain at all.

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In the past I could have lived an easy-going month, with little financial activity, and by the end of the month I would notice 150 Dollars is missing from my budget, without really knowing what I spent it on. I could not track this amount anywhere.

I have to admit, I did not have an efficient bookkeeping system at that time, and it is one of the main reasons I implemented it. I started to track all my finances on a day-to-day basis, and what I found quite quickly is that the money which mysteriously seemed missing was in fact spent on convenience items.

As the word says, convenience items are bought out of pure convenience. It might be the quick take-away coffee you buy when you walk past Starbucks on your way to work, or the pack of chewing gum you buy because you saw it lying around while you were waiting at the cash counter. I personally also count fast-food to convenience items.

I have to admit, some convenience items are fully justified; for example, I would sometimes buy a frappuchino after work on a hot late afternoon, or somethings else to reward myself for some achievement I did on that day. In most cases, however, I found that I bought many convenience items because I was simply being lazy or reluctant to say ‘no’ to myself.

I found one trick, which has helped me the most: before I went out the door, I would get prepared. In the morning, I would make sure that I had at least two cups of coffee before I went out the door, sometimes I would even take with me a small bottle of water. Moreover I would make sure that I would not leave home with a hungry feeling, especially not when I was going shopping for groceries; doing your groceries while you’re actully hungry will result in uncontrollable shopping and thus spending more money. Additionally, each time when I shop for groceries I will make a shopping list, and rarely deviate from it. This allows me to stick to the original plan.

Surely I still spend some money on convenience items, but the total amounts has dropped from 150 Dollars to around 50 Dollars per month; a very good result.

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As soon as you spend money, it is gone and you will never get it back. Surely you will earn some more money, but it is not the same money. You have lost the money, unavailable for investing it, unavailable for paying back debt. Looking at things differently, you may actually have spent much more on your purchase.

Look at money from a different perspective for a moment:

If I spend some money on some item now, it will not be able to generate interest.

The magic word in this statement is ‘interest’. If I buy some item at this point in time, I am litterally missing out on obtaining interest on it. Let’s taken an example of this, a men’s suit which I bought a few weeks ago. The suit costed me 220 Euros, which is not expensive. However, would I have not bought this suit, I would have had this money available to put on my savings account. Assuming that the savings account has a duration of 5 years with an annual interest rate of 4%, these 220 Euros would turn into 268 Euros over that 5-year period. This is an increase of 21%.

If you are currently paying back debt, and you are allowed to transfer additional one-off sums, the effect is the same; the interest rate for debt is much higher than it is for savings (for example 12%). Suppse you are paying back a 10,000 Euro loan at an interest rate of 12%, during the next 60 months. The monthly payback rate would usually be 219 Euro per month, during a period of 60 months. Now suppose, you would make a down payment of 220 Euros (what you would have otherwise spent on the suit). This leaves you with a monthly payment of 215 Euros per month. You are saving 60×4 Euros, making a total of 240 Euros.

The benefit of using such a calculation as the ones above, is to be contious of the future value of the money you are spending. For myself, it allows me to strictly determine whether I really, really need an item, and whether or not it will enrich my life. If it does not enrich my life significantly, or if it does not help me in some way to either reduce expenses or increase income, I will usually not buy it. I would rather put the money aside on a bank account, or perhaps invest it, so it can grow over time.

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We all want a big estate, a powerful car, stylish clothes from the finest brands, and so on. While many of these things certainly can be realised, having a grip on your finances is all about identifying your own and personal ‘needs’ and ‘wants’, and acting accordingly.

Let us look at what a ‘need’ is in the first place. Basically, a ‘need’ is anything which makes it possible for you to live in a safe environment and to reproduce, at least that’s how I look at it. This includes food, water, shelter, love and sex (including also social contacts). Be honest to yourself: do you really need anything else to survive? However, these basic needs may cause you to live fairly uncomfortable in the modern world. For this reason, I want to take it one step further for the purpose of this article and re-define what a ‘need’ is:

A ‘need’ is anything which makes it possible for a human being and his/her family to life a comfortable and exciting life.

Following this definition, what a person needs differs per individual. No two individuals are completely the same, and their needs may lie far apart.

Have you ever heard one of your friends say ‘but I needed this new pair of shoes’, knowing that the pair will end up in the closet together with 52 other pairs? Probably yes, and this is the essence why many people end up in a situation of debt, sometimes so severe that there is no way out of it but to file for personal bankruptcy (if you are such a person, please seek professional help from an independent advisor; the information on this website will not be sufficient to eliminate your debt).

Knowing the difference between needs and wants, it is essential to ask this question each time. If you are not used to it, it is very easy to let yourself go in the process. If you have a credit card readily available, it does not make things easier. The essence is that each purchase should contribute to the quality of your life significantly; it should enhance and enrich your life. If this is not the case, you may do yourself a big favour and leave the item where it is.

Reminding myself of my own definitions of ‘needs’ and ‘wants’ have significantly helped me to keep my own finances in control.

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