We've moved to Facebook! Follow us there!

Wednesday, January 6, 2010

Is Buying When on Sale for a Future Need a Good Idea?

While discussing the approaches of saving money, people often share with me that they are always on the look out for a good buy and when they see one, they stock up. Sometimes this is a good idea, and sometimes it is not. The question is, how do you know when it is good to do?

Removing any psychological gain one may have when a good buy is found, let's look at the decision to buy now versus buy later from a mathematical perspective.

Let's say that you normally spend $2.59 per tube of toothpaste. You walk into your favorite store and wham! .... your tube of toothpaste is for sale for only $2.49. Do you buy it, even if you don't need it? If you do buy a few tubes ahead, how many should you buy ahead?

In our house, 1 tube of toothpaste lasts the 4 of us 2 months. So, the real question becomes, where should we invest our $2.49? Should we lock up the $2.49 into a tube of toothpaste that we won't need for 2 months or more? Or do we put the $2.49 into an investment vehicle?

In our easy access savings account that we use for daily living, we earn 1.3%. This means that for every year a tube of toothpaste is sitting in our stockpile, we could have earned 3 cents in interest on that same $2.49. That is far less than the 10 cents of savings we had in our example! In fact, our toothpaste tube could sit for 3 years before interest earned equaled the amount saved!

Another interesting factor is if you believe the cost of the item will go up once you buy it. If it does, you are even further ahead.

Always keep in mind spoilage and changing tastes if you buy ahead. Items do spoil, and your tastes do change. There is nothing like having a pantry full of Cocopuffs and deciding that you can't stand chocolate cereal anymore.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.