Live Like a King on a Pauper’s Pay

Think of this as lifting weights for your bankbook. Lets face it, you spend time and resources taking care and monitoring your health. And when you do, your results show and you proudly strut yourself across the warm sands of some far off sunny beach. You can do the same thing with your finances.

Contrary to popular belief, you don’t have to be a millionaire to live like one. What you need to do is respect your money like those that have it do. You would be surprised how with just a little bit of nurturing your money will flourish.

So lets get going on what are some very easy steps to overcoming financial disarray. First off, don’t listen to anyone who tells you that you can’t buy what you need/want. The truth is, if you are wise in your decision making process, no matter how much you make, you can live a very comfortable life and still prepare for your future. Don’t get me wrong. You can not live in a 10,000 square foot home on a $10,000 a year income, however, you don’t have to live in a dump either.

So lets talk about the basic steps involved in making a smart buying decision. It’s easy to get caught up in the excitement of buying something you really want, like a new car, a television, or new clothes. But eventually the excitement fades away, and you’re left making the payments. STAY AWAY FROM BUYERS REMORSE!!! We all know this feeling. The, oh why, oh why, did I buy that (or drink that)? Who is he/she, and what are they doing in my bed? But I digress.

I’m here to tell you that with a bit of planning and care you can insure that the decision you make today will be as satisfying a week, month, or year from now as the day of your purchase.

This is true whether you’re buying a new car or a bottle of beer. And making wise buying decisions can mean the difference between reaching your financial goals or always being short of cash.

The good news is that making a smart buy is relatively easy if you incorporate seven basic steps.

I call these the magnificent seven of smart buying. From distinguishing between a want and a need all the way to negotiating your best deal. The following steps will help you complete the buying process, whether it is a product or a service you require. Once you master these few steps then the rest of money management and growth falls into place.

1. Define your Problem
2. Identify alternatives
3. Needs VS Wants
4. Gather Information
5. Compare, compare, compare, oh and then compare some more
6. Pick the best one
7. Negotiate the best deal

Regardless of price or product complexity, good decision-making skills are the same. The pay off will not only be immediate, but over time as well. Depending on when, where, and how you buy, the same bottle of beer can cost $2.00 or $7.00. A car that costs $20,000 at one dealership might be available somewhere else for hundreds or thousands less. Don’t automatically think that your dream car is out of reach; buying smart and doing your research means you might not have to scratch that off your list. Obviously, the stakes are lower when you are only buying a bottle of beer, but the process of smart buying and decision-making is the same.

Now that you know how the magnificent seven and be both beneficial and painless, let’s walk through each one. . . .

DEFINE YOUR PROBLEM

Every product or service you buy is designed to solve a problem: a bottle of beer quenches your thirst; autos provide transportation, and house keeps the rain off your head. How you define the problem can have a huge impact on how you solve it. If you define your problem as “I need a new car” then your only solution is to buy a new car. But if you can define your problem as “I need reliable transportation” then this opens the door to all kinds of possibilities, taking the bus, sharing a ride, buying a used car, riding your bike, or walking. All of these are viable options to your dilemma.

BRAINSTORM YOUR OPTIONS

Wise buying is all about making good decisions. in order to make good decisions, you need to know your options. After you define your problem the next step in wise buying is to make a list of all possible choices – everything and anything you can think of. Remember, this is not the time to be critical. Make a list of everything you can think of that will address your need/want. The key is to have as many solutions as possible. The more substantial the purchase, — like buying a car or a home —the more alternatives you’ll want.

The next step is CRITICAL to your financial health and wealth and often times requires a huge amount of maturity. Step 3 separates the boys from the men, or in other cases, the girls from the women.

SEPARATE NEEDS FROM WANTS

It’s important to be able to tell the difference between needs and wants. You may want a new car, even though taking the bus will get you where you need to go. Or you may want a new television, even though your old one still works.

Many people get into trouble when they confuse what they “want” with what they “need.” As soon as you decide your “want” is “need”, then other alternatives for solving your problem are taken off the table. Your mind is already made up and the decision-making process is over.

So lets clarify, NEEDS are essential requirements on our lives. We need air to breath, water to drink, and cloths to wear (most of us don’t look great naked). WANTS are things we desire but are not necessary for survival.  Sounds complicated, right? Guess what, with a few simple tools to help, it becomes a breeze.

NEEDS VS WANTS; Don’t confuse the two.

Sometimes it’s helpful to make a chart to define things as wants versus needs. This chart shows a sample wants versus needs checklist for purchasing a vehicle. You can click on the link below to download a wants versus needs checklist that can be used to make your own purchasing decisions easier. 

Needs VS Wants Table 

Once you’ve written down all the alternatives for solving your problem, it’s time to gather as much information as you can. Remember, the best way to make your money go farther is to always get the best deal you can find. That means doing your homework. And here you thought you were out of school!

For instance, when buying a car you should have pricing for makes and models that interest you, the value of your current vehicle, interest rates for your financing options, and pre-approval from your bank for the loan.

And remember, you can’t rely solely on sellers for product information. They have an incentive to give you only the information that is favorable to them. Imagine that. Are you going to tell that special someone on the first date that you fart in your sleep? NOT!

This brings us to the fourth rule to spend by.

RESEARCH YOUR OPTION

You want to seek out reliable independent sources for information, in the case of buying a car; I usually go to the Kelly Blue Book or Edmunds.com. In some instances, I would use both. The more information you have, the better buy you will get. That means the more money you will have in your pocket, or beer on the table, whichever you prefer.

In the case of buying that “new” car; will you insist on one with zero miles, or buy one that is the dealer demo? The difference is astronomical! I say let the dealer take the hit. We all know that the minute you drive off the lot with a new car the market value takes a 10 – 20 percent drop. Wouldn’t you rather have that 1-2 thousand in your pocket instead?

If you are trading in your grandmother or donkey, be sure to know what the true value of your trade-in is. Needless to say, the dealer will want to give you pennies on the dollar so that he walks away with the profit, not you. And whatever you do, DON’T fall for the “tell me how much you want to spend per month” line. You are in control of your buying decision and your monthly payment. Be prepared to go elsewhere to satisfy your need. This is America! Competition is rampant. God I love this country.

This also pertains to your financing options. Be prepared with a pre-approval from your bank so that you don’t lose your pants with financing options from the dealer. Remember, this is a major part of how they make their money. The bank actually pays them to talk you into a higher interest rate. That means make sure you know your credit score so that you can be on a level playing field while negotiating. But hey, don’t start talking price until you find out what your trade-in is worth. You guessed it… the fifth sage of sound advice is…..

YOU BETTER SHOP AROUND

That’s right, just like the song… you better shop around. After you’ve done your homework with independent sources, the next step is to shop around. This involves gathering information from different sellers, so you can decide who is offering the best deal. This doesn’t always mean the lowest price (a $5,000 car that runs for a week is not a better deal than a $10,000 car that runs for 5 years).

When you comparison shop you should take a look at things like the product’s features, durability, warranty, and styling, as well as price. Don’t forget to take your Needs vs Wants grid with you. It can be next to impossible to keep from getting excited once you take a good long whiff of that NEW car smell. You know the scent, it’s that one that makes your brain stop working and your knees turn to jelly. I swear, the dealer sprays himself with it right before you walk through the doors! So hold onto your grid, it is a representation of what your brain wants before the emotions entered into the race. REMEMBER…. Your best buy is the alternative that gives you the quality and features you need at the lowest possible price.

Sample Need VS Want Table

So how do you comparison shop? First off, you will need to make sure that you get the answers to the same questions from each competing source. In this case, you must compare each “deal” from the dreaded car dealerships that you have picked out. No matter what the angle is, or how a sales representative sets it up. All purchases can be evaluated if you follow the same tactic at each dealership. Don’t forget to check out Craigslist or the equivilant in your area. Buying from an individual instead of dealer can often times be the better deal. CAUTION, if you do this, make sure to have a machanic look the car over first and be aware of scams.

Always get the seller to give you a firm price. That way you can compare their price with other sellers, and with what you know the item is worth. Second, never. and I mean, NEVER tell the seller what you can afford to pay, or that’s what the seller will charge you. Like I said, it is to your advantage, if you’re buying a vehicle, to avoid discussing your trade-in until after you have a firm price on the vehicle. This accomplishes two things. First, it will prevent the seller from inflating the price of the vehicle to compensate for giving you a higher trade-in value. And second, it will make it much easier to compare your seller’s offer for your used vehicle to what you know it’s worth. If you know that this is the place you want to buy then go ahead and start talking about how to finance your purchase. But whatever you do, make sure that you have a firm price on both your “new” car and your trade-in before you continue (always in writing). Then use the APR, not the monthly payments, to compare the cost of the seller’s financing to what you know you can get elsewhere.

OK, so you have done your homework and have established what you can pay for your purchase. Now what? How do you make the best choice between the competitors? Choosing the best alternative isn’t that hard when you’re buying a six pack of beer. But it can be very difficult when you’re buying more costly and complex products or services. The more costly and complex, the greater the impact will be on your financial health. This makes the decision making process even more important.

PICK THE BEST OPTION.

I have found that it helps to make a list of the features you’re looking for, and then determine which alternatives meet your needs. I use the chart to below to help me make the final choice when I am purchasing a big-ticket item, like a car. I have included a link below so that you can download a blank decision-making chart to customize for your own major purchases.

Decision Making Grid

This chart is simple to use, all you need to do is score each criteria on a scale from 1 to 10. The number 1 being the least important and 10 being “OMG, can’t live without” factor. Once you have scored each category multiply that number by the percentage of importance of the decision. From there all you do is total up the column. The option with the highest number is the one you buy! One can even chose a mate this way, just make sure he/she can fit in the Fiesta because that is the one you are going home with.

 Sample Decision Making Grid

This brings us to the last, but not the least, rule of thumb. It also seems to be the one that we Americans have the most difficulty doing.

NEGOTIATE… THAT’S RIGHT, YOU SET THE PRICE.

It never hurts to negotiate the purchase price of products or services before you buy. Once you have chosen among your alternatives, go back to the seller and negotiate the best deal you can. They do this all over the rest of the world, and being a global economy sellers often expect buyers to haggle. Not just over the sale price, but other aspects of the sale as well. For example, when you’re buying furniture you can ask for free delivery. Or if you’re buying a computer or other electronics, ask for a free service contract or zero percent financing. Don’t be shy. You wouldn’t order a steak well done and then eat raw meat just because that is what they set in front of you, would you? The worst that can happen is the seller says no. If that happens then you can go elsewhere or accept his terms. The choice is back in your hands…. Who knows, you might even save some money (more beer?).

Being a good negotiator comes naturally to some people, but a lot of us have to work hard at it. Here are some tips to help you be a good negotiator:

1. Know the fair price of what you are buying.
2. Never tell the seller what you can afford.
3. Make the seller offer a price first.
4. Negotiate each part of the deal separately.
5. Let the seller know you have other options.
6. Be prepared to walk away from a bad deal.
7. Don’t let yourself be rushed. There is no hurry.

Knowledge is power. Do your homework, and control the situation by knowing your needs and wants, and what your alternatives are. You’ll be amazed at how much easier it is to make a wise decision.

Wise buyers know that regardless of price or product complexity, using good decision-making skills can pay off.

The magnificent seven steps to smart buying will allow you to dive into your financial investment with ease, and confidence, that you won’t hit bottom when you are done. Here they are one more time.

1. Define your Problem. What will the product or service solve?
2. Identify alternatives. Make a list of all kinds of options. The bigger the purchase, the longer the list will be.
3. “Needs” VS “Wants”. This is critical. Here is where you will save $$$$$. Remember that “wants” cost extra.
4. Gather Information. Make sure your sources are independent of the buying decision and reliable.
5. Compare, compare, compare. Find the place where the quality you desire is at the lowest possible overall deal. Remember, I’m not just talking price.
6. Pick the best one. Stick to your criteria and then choose the one that works best for you.
7. Negotiate the best deal. You don’t want to wake up next to your new “mistake” 

Next I will talk about making goals and how that will assist you in leading your life like a millionaire.