Occasionally when I write these blog posts I get a few unhappy visitors. They usually give their negative feedback in the comments, or send me email via the contact form. It’s no surprise! That age-old-adage from Field of Dreams still applies: “If you build it, the trolls will come!”
My favorite trolls complain about how I spend money (or don’t spend money). While I don’t care about the negative comments, I do worry that these critics don’t understand my principals well enough. There’s a reason why I spend the way I do. You know what? — It’s probably my fault! I’m probably just not explaining my principals well enough!!
So today I’m going to share another of those key principals. It’s one of my deep dark secrets to building wealth. Got a notepad handy? You might want to write it down.
All joking aside, if you really apply this tip, you may end up achieving financial independence sooner than you thought!
Here it comes: Never Pay Retail!
What Does It Mean?
The story of this “wealth building principal” started many years back…long before Mrs. Tako and I hatched our plan for financial independence. I used to be a bit of a spendthrift. I was a consumer and I didn’t know any different. I shopped at retail stores and bought things at full price. I bought new clothes without even thinking about it! I built new computers every two years. I paid full retail prices and thought this kind of behavior was a completely normal way to purchase goods.
I was terribly wrong. A period of job loss coupled with big debts caused me to re-evaluate my priorities and get a better handle on my finances. Eventually I adopted this financial mantra of “Never pay retail”, and I stuck with it over the years.
Writing this, I’m pretty ashamed at how much money I wasted paying full retail prices. With just a little more effort I could have saved myself thousands of dollars a year…and over time that money could have compounded and made me financially independent much sooner.
“Never paying retail” starts with understanding that most consumer goods sold without promotion or discount in the United States are extremely over-priced. Typically, retailers have a few different classes of price they sell at: Full Price Retail, Discounted, and Inventory closeout.
As you can imagine, Full Price Retail goods sell for the highest prices, and have no markdowns. Over time, to make way for new inventory and move out the old, retailers will put items “On Sale”. These are the Discounted goods. Usually retailers still make profits on Discounted goods, just smaller profits than they would realize at Full Price. Inventory Closeout goods are mainly items retailers just want to get rid of. They didn’t sell (for whatever reason), and the retailer wants to realize more than scrap value for those goods. This usually means great deals for buyers!
If you think back to Economics 101, this follows the basic principles of supply and demand. Retailers control the price, and inventory (supply of goods). They start out by setting the price high when a product is new. At the higher (full retail) price they make big profits, but the number of sales are limited. Once the market is saturated at the higher price point, retailers begin discounting the price, and sell more goods at the lower price point.
If the retailer has done everything correctly, inventory is very limited when closeouts occur. Retailers just want to move what remains of their inventory, so the price is further discounted until the remaining inventory is sold. Usually this is done right around when a new model comes out.
I can understand why retailers do it — It’s an optimal model for maximizing profits along the demand curve without having excess inventory.
Want to save yourself gobs of money? Never pay those full retail prices! I’m not saying avoiding shopping or spending money altogether. That’s just silly! What I am saying, is avoid buying at undiscounted full retail prices.
At the very least, wait until the item goes “on sale” and gets discounted. Most consumer items will be discounted at some point. Just be patient and wait for the discount!
For example: Father’s Day is coming up soon – it’s on June 19th this year. Amazon and other retailers always discount tools on Father’s Day. A quick look at the major sales seem to indicate you’ll receive $20-off from orders of $100 this year. That’s up to 20% off!
It might be a good time for me to pick up that sweet Makita Router I’ve been lusting after.
Assuming the likes of Dewalt, Makita, and Bosch still generate profits during this sale, the full retail price of tools must have incredible profit margins when they’re not discounted!
So don’t pay full retail! If you absolutely must buy new, find out when these things go on sale and wait for it. There’s nothing like waiting a few days to keep yourself from any wasteful spending.
Alternatives To Full Price
Normally I try to avoid the temptation to spend….but sometimes you just have to purchase stuff. In situations like that, how do I avoid paying full retail prices?
Well, I’ve got a whole list of possibilities…and there is always a way to get cheaper than full retail prices. When you need to spend, (but want to spend less) give some of these ideas a try:
Wait for retailer discounts — Retailers routinely discount certain items to promote traffic at the store. Wait for those regular discounts and reap the savings. The Father’s Day Sale I mentioned earlier is a great example.
Use a different retailer — Include alternative online sources like Ebay. Some lesser known retailers are more willing to discount for lower profits. If you’re willing to do the extra leg work, pretty significant discounts can be found.
Find a coupon –– Either online or in “meat-space”. I always check sites like RetailMeNot before I purchase anything online. There’s almost always a way to knock a few dollars off with a coupon.
Minimize Shipping Costs — If you’re anything like me, you buy a lot of the stuff you need online. It frequently saves both time and money to order online. When I can, I try to take advantage of free shipping deals. Promotions like Free Amazon Prime for 30 days are a fantastic deal.
Negotiate lower prices — We’ve had surprisingly good luck negotiating lower prices at retail stores over the years. Sure, sometimes they say ‘no’ but more often than not the retailer can do something for you. Back in April, I negotiated 70% off new Samsonite luggage for my in-laws. Yes, 70% off…because I bothered to ask for discounts.
Use reward systems — Like Bing Rewards or Ebates to lower your prices. I’m a fan of both. Couple those discounts with deals like Free Amazon Prime, and retailer discounts like the Father’s Day Sale, and the savings can be significant.
Try thrift stores — Maybe they have what you need, or something close enough!
Check Craigslist — You never know when someone is already selling exactly what you need at a price lower than retail.
Why Work So Hard At Buying?
Sure, you could ignore all this advice and just pay full retail prices. I fully admit paying less takes more work. Some people think shopping is supposed to be fun, not work.
The philosophy of “never paying retail” is mainly for the individuals who want to push their savings rate above 50% — Those who want to gain true financial independence at a younger age.
It takes a bit more work, but in the end I think the savings (and financial freedom) are worth it.
[Image Credit: Flickr]