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?
32 thoughts on “Weird things that I think about before purchasing something”
#4 came naturally to me as a kid. On my first job, I calculated down to the second how much I was earning (one penny every three seconds) while shovelling rust in summer heat. Tax wasn’t much of a consideration then. But I would definitely rate my spending according to time, and often as a ratio: one hour of work for a two hour movie, 2:1 entertainment. Not bad. But a well chosen $80 video game was great value… sure, it was most of a day’s work, but I could squeeze a 10:1 ratio without even thinking about it!
That doesn’t work so well as an adult, but it put me on a good path. No surprise, I suppose, that I’m FI in my 30s.
Wow that’s awesome you already hit FI in your 30s. Would you be interested in doing an interview to provide more details about your FI journey?
I definitely do #4 — it works for me in both directions. I low-balled my hourly take-home, but I stick to that calculation. I’m lucky in that the calculation I use is a nice round number.
I also like that it’s good in both directions:
When I want to splurge on something I don’t get value from: 40 minutes for a mediocre dinner out – No
But also it helps when I’m being too stingy and denying myself a small treat: 20 minutes for a decent bottle of wine to drink at home – Yes!
I think the same way about the credit card too! I think the one other thing I may do that you didn’t list is try to go through ebates to get the discounted percentage. May not be as many points, but it’s kid of the best of both worlds. Especially when places like Marriott give double percentage days. I know I’ve saved quite a few dollars with my travel because of this.
That’s a good point, it’s something we do as well, just didn’t mention it in the post. 🙂
It’s funny how similar we are Bob! I think about most of these things all the time too!
One additional thing I think about, is “Do I really need this? Can I live without it?”
More often than not, I can either live without it or find a much cheaper solution.
Haha frugal ppl act and think alike. 😀
I did #2 a lot when I wasn’t making a lot of money and I was trying to stretch it out for items that didn’t perish easily. Produce was a different thing though as it was only just me and I hated throwing out food that expired!
Lately, I find myself doing #4 since I started noticing the lifestyle creep. Then when i did this, I noticed how much I was “working” to pay for said item. It does help!
Yeah throwing out food is just wasteful so it’s better to buy just enough food to last you rather than buying too much and having to throw it out.
I do #1 and #2 – I’ve always liked the idea of #4 though, it sounds similar to the concept in the book ‘Your money or your life’ (which I haven’t read!). With food I sometimes to a ‘per use cost’ – say for example, if you know you won’t be able to use all of a 1kg bag of salad greens that cost $5 before it rots, but you can use a 500g bag that cost $3 then I go with the one that’s actually more per kg but less per use. Otherwise I’m eating $3 and throwing $2 in the trash! This probably is less relevant for a family, but since I live alone I often found fresh food in particular would expire, because I was buying the cheap per kg packages.
Good point, definitely a good idea to buy things that you can consume. Buying bulk doesn’t always mean cheaper.
I always do 4 – especially when I’m craving some comfort food at work but I’ve brought my lunch. I’ve got a lunch and going out will cost me at least 45 minutes of work, so do I really want to do that…?
I do all of them actually… many a times I pull out my calculator (thank goodness for phones!) to calculate the per-unit cost.
These are great tips, thank!
Yeah I like to do #4 as well, makes you realize how much time you need to “work” to get whatever you want to buy.
Regarding #2 I also check the content in boxes for example. Sometimes you have boxes or packages of the same size as before but with a lesser amount of content in the box. Companies like to keep the box size the same but reduce the amount of stuff they put in. Certain brands do this right now with granola bars. The consumer does not realize it right away as they are used to the brand and box content and so just grab it when shopping without checking.
In Germany we call that a “Mogelpackung” a “cheat package”.
While saving on the lower priced items are important, you also need to make sure you save money on higher priced items like cars and houses. The two go hand in hand.
Bob, thank you for sharing! I think this would be a very healthy habit for the majority of people to do. People especially who don’t have that frugal mindset (which is, I believe, the majority of the population, especially in metropolitan areas). Because by not doing these mental calculations, people don’t really know what they’re spending and what kind of opportunity cost they’re trading for their decisions.
It is really easy to be frugal if you put some brain power into it. 🙂
the title is werid thing too 🙂
do #2 and did #4 before FIRE and on occasion #1 but it doesn’t drive anything
Ha. Does that mean you don’t do any of these now you’ve reached FIRE?
oops, I didn’t express myself very well – always do #2 , on occasion #1 but its not a major factor and stopped #4 after FIRE and never did #3
isn’t that werid ?
Not weird but makes sense to me. 🙂
ok I give up – are you ignoring the misspelling in the WERID title ? 🙂
Oops I missed that. Sorry I have it fixed now!
OMG I do all 4 haha. Maybe not so much #1 although I love the rewards. Going through these questions may seem time-consuming and redundant, but it’s helped me make a lot of good financial decisions and save lots of money too!
Haha you know you’re frugal when…. 🙂
The credit card one i do. Dinner i dont really mind we dont eat out much so i want to just enjoy it although i do look at the prices. One thing i do do though is compare the purchase in extendicare stocks since they are roughly 10 bucks each. Is this worth 8 extendicare stocks?
We don’t eat out that much either but it’s a good thing to know which restaurant can provide the most bang for the buck .
Nice list, I’m only guilty to #2 though. I just want to receive some value for my money. Why pay more for the same product, right? #4 may also be something to use. I would just leave the item alone, because the calculations just takes up too much time 🙂
Wow only #2? :p Yeah it’s a good thing to calculate so you can do a proper comparison. #4 is easy once you know your after-tax hourly rate.
I think #2 is the most powerful way of avoiding bad deals! Definitely something I do and think other people should do!
Haha- I do numbers #1 and #4 pretty often! The credit card one especially during big purchases (hotel room for $200… couple bucks back!) and #4 for many purchases. My hourly rate gives me good perspectives when I am purchasing something.
That’s good to know I’m not the only one doing the same in my head ha.