I was raised by frugal parents, therefore, frugality has been ingrained in my brain. Being frugal does not mean I don’t buy anything… ever. Rather, it simply means that when it comes to purchasing something, I question myself many many times before making the purchase. Call me weird, strange, or goofy if you want, below are some weird things that I think about before purchasing something.
1. How much money are we getting back from credit cards?
We only use rewards credit cards. Because we treat our credit cards like debit cards, we aren’t worried about credit card debt. We probably use our rewards credit cards for 99% of daily purchases to rack up rewards quickly. Our main credit card, Capital One Aspire Travel, gives 2 reward miles for every dollar spend. So before purchasing something, I would calculate in my head how much “money” we’re getting back.
- That $5 latte we just purchase? Woohoo we made $0.10!
- That $1,500 plane ticket we just booked? Woohoo we made $30!
- Filled up the car for $60? Woohoo we just made $1.20!
It is amazing how quickly these reward miles add up. Since gotten the card less than 3 years ago, we have redeemed over $4,000 in reward miles and almost $800 waiting to be redeemed. That’s passive income that we earn on a daily basis by simply using our rewards credit cards.
Thanks to “creative” accounting, we often use these earned “passive income” for our investment. For example, say we redeemed $1,000 worth of points for a plane ticket. In our budget, we would still pay the $1,000 plane ticket from our Long Term Savings for Spending account. The $1,000 “earned” money would be treated as income. The entire amount would go toward our Financial Freedom Account and be used to purchase additional dividend paying stocks.
Earning almost $4,000 in rewards miles does mean we have spent a lot of money, even after taking out all the annual bonuses that we have received. However, I used to use this card for my business travels (my company now has put me on a corporate credit card) so the actual out-of-pocket spending is significantly less.
In addition, I constantly think about which rewards credit card to use for a particular purchase in order to maximize reward points. For example, sometimes it makes sense to use the Marriott credit card to earn Marriott points while sometimes it makes sense to use another credit card to earn more other reward points.
2. What’s the per liter or per kilogram cost?
When purchasing something in a package, I like to compare the per unit cost between the different brands. This allows us to get the best deal available.
Which one below do you think is a better deal?
Option A: A 1.5 kg of oats that costs $25
Option B: A 2.5 kg of oats that costs $35
Option C: A 3.5 kg of oats that costs $50
If you look at the prices quickly, you might think that Option C is the best deal. But if you break them down into price per kilogram, they would look like below:
Option A: $16.67 per kg
Option B: $14 per kg
Option C: $14.29 per kg
So option B is the better option.
In the grocery store, the same product may be packaged in different sizes. Therefore, it simply makes sense to compare the per unit price and base your purchase decision on the cheapest per unit price.
3. What’s the per person cost?
Whenever we go out for a meal, I always dividend the final bill by total number of people at the meal. This is especially true when we go out for a family meal. There is a huge difference between a $100 meal with 2 people and a $100 meal with 5 people.
Determining the per person cost gives a good indication how expensive the restaurant is. I especially like having excellent food at a restaurant and finding out at the end that it cost less than $20 per person. If a restaurant is perceived “good deal”, I tend to go back to the establishment more.
4. How many hours do I need to work for this item?
This is probably the one question I especially like to ask myself whenever I buy something, regardless on what the price is. While many people just divide the cost of the item by their hourly wages, this calculation is not 100% accurate. Why? Because you are paying the item with your after-tax income. You need to consider your average tax rate when doing this calculation. For example, if your hourly rate is $25 per hour and the item costs $25, you might think it takes 1 hour of work to pay for this item. In reality, if your average tax rate is 20%, then this item would actually take 1.25 hour of work.
It is a good idea take a look at your income tax filing and calculate your after-tax hourly wage. I always get surprised by the actual number.
Mrs. T always look at me funny whenever I run this kind of analysis in my head and tell her about it. While these things mentioned above might sound weird to some, I think they are great ways to determine whether it makes sense to purchase an item or not. Instead of buying things on impulse, I leave my emotion out and let me brain to the work. It is pretty amazing how many purchases I have decided to turn down over the years.
Dear readers, are there things you think about before purchasing something?