Personal Money Tips

Do you ever consider the Total Cost of Ownership of owning a certain product you are about to purchase? Most people usually just compare purchase prices and don’t calculate the total cost of ownership. Certain types of products cost very little to buy but over the long run, cost a lot to maintain. Examples that come to my mind are disposable razors, printer ink, cars, batteries and most electrical items.

I think disposable razor blades probably started this trend years ago when they started to charge high for the blade cartridges and almost gave the holder away for free. Years ago, I used to use razors with disposable cartridges. Some companies gave them away free with just one cartridge so that you will buy the replacement cartridges. Compared them to a battery operated shaver, battery operated shavers cost much less over the long term even though the initially cost is higher.

The computer printer industry got this idea next and today, most budget printer cartridges cost as much as a new printer with the a new printer cartridge. For high volume printing, a laser jet printer would be a better choice compared to bubble jet printers. Most people who had bought a printer would be able to attest to it.

It is the same with cars. Some car makes have hefty replacement and repair cost, especially European makes. If you buy special edition models, sports or rare models, your total cost of ownership will be much higher because insurance, replacement parts and gas will all be higher. Not only that, some model have low resale values.

Finally batteries and electrical items. Use rechargeable batteries as much as possible. Lifetime cost is much much lower and it is better on the environment too. Look for energy efficiency for electrical items like refrigerators and air conditioners. You can safe a quite a bit in electricity cost and have a lower total cost of ownership.

Calculate the total cost of ownership before you buy. It applies to many things in life.

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Further to my last post on Herd Mentality, I had a recent conversation with a friend about his approach to building wealth. I won’t be able to mention everything here. It involved several financial tools put together to form the strategy. But most of all, I can say that it is quite different from what average people would do.

For instance, most people go out and buy a property, be it for investment or for own use. Most people just go out, search around and bargain a little and put down the money. There are others who buy at auctions or from the property developer directly. What my friend was find several of his friends, found a larger piece of land that wasn’t developed yet. He then form a company jointly to buy the land.

Long story short, they sub divided the land, got the architects, engineers and contractors together to build their dream homes. At probably half the price they would have paid if they bought the property ready built. Off course it did involved more work, but then, it was worth it.

Imagine getting bank loans. With the competition at all time high, several loan officers would have tripped over each other to get a shot of giving them a loan. So too would the other people involved in the whole project, I’m pretty sure.

The whole point is, collectively, my friends have better bargaining power to get better deals compared to being individuals. Would there be obstacles, probably yes. But it is thinking out of the box rather than doing what everyone is doing. This is just one financial strategy he used. You can do it too.

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Herd behavior is the term used to describe situations in which a group of individuals react coherently without there being any coordination between them. Usually used to describe animal behavior, it also describe human action when it comes to investing, stock market activity. I was inspired to write this post when I read the “Our Daily Bread” on the 17 of April 07.

Near the village of Gevas in eastern Turkey, while shepherds ate their breakfast, one of their sheep jumped off a 45-foot cliff to its death. Then, as the stunned shepherds looked on, the rest of the flock followed. In all, 1,500 sheep mindlessly stumbled off the cliff. The only good news was that the last 1,000 were cushioned in their fall by the growing woolly pile of those who jumped first. According to The Washington Post, 450 sheep died.

This event happened sometime in 2005. Strange that animal behavior is used to describe human behavior. You and I know that it is true. Most people follow the crowd. Financially however, following the crowd can be disastrous. Just like the first sheep that jumped off the cliff, you could be committing financial suicide. The majority of the people have too much debts, used too much credit, buy the wrong things, retire almost broke, etc. etc. Don’t follow the crowd.

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