I am starting to get many e-mails about Black Friday. There are many discounts on products on offer. Many people have been asking me if I have gone shopping to get discounts and generally I haven’t purchased anything because of Black Friday.
I have written about this many times before but I believe that someone is much more likely to spend less if, instead of focusing on discounts, they instead are just deliberately ignorant of all the discounts out there. Very many of the things we buy are not actually essential, but discounting creates a sense of urgency that we need to buy it now otherwise we will miss out, and we often end up buying something we don’t need. A much better approach, in my opinion, is to be ignorant of advertising and not buy the product in the first place.
Saving money and being frugal is mostly psychological, so in this post I will talk about some of the psychological tricks that I use on myself to try to stop myself from spending too much.
Putting up barriers to spending
Something else that I like to do is put up “barriers to spending” or in other words make it hard for myself to spend money. For example, I often do not buy things online, and I am not sure exactly why this is the case but one of the benefits of not buying online is that I need to put more effort into buying something. It is very easy to buy online, and this ease and convenience makes it more likely you will overspend. If you make it harder for yourself to buy, you will naturally spend less. Buying things in a physical store rather than online is one way that I put barriers on myself to spend.
When you put barriers on yourself to spend, if you are willing to go through all these barriers to spend, it suggests that what you are spending on is likely to be a need rather than a want. For example, one day I was at work and noticed on the weather forecast that there was a storm coming in the afternoon, and I didn’t have an umbrella, so I felt I needed to buy an umbrella. During my lunch break I went into K-Mart and spent maybe thirty minutes looking around the store for an umbrella but could not find one. I then went to a nearby Daiso store and got an umbrella for $8. The fact that I would put so much effort into finding an umbrella suggests that the umbrella was necessary.
Lipstick effect
There is a term called the lipstick effect which Wikipedia defines as follows: “The lipstick effect is the theory that when facing an economic crisis consumers will be more willing to buy less costly luxury goods. Instead of buying expensive purses and fur coats, for example, people will buy expensive cosmetics, such as high-end brands of lipstick. The underlying assumption is that a certain portion of consumers will still buy luxury goods even during a bad economy. When consumer trust in the economy is dwindling, consumers will buy goods that have less impact on their available funds. Outside the cosmetics market, consumers might be tempted to purchase other high-end goods such as expensive beers, or smaller, less costly electronic gadgets.”
The lipstick effect is an interesting phenomenon and something that I embrace as well. In order to be frugal, I often spend money on small things that give me joy. This is why I am not against buying coffee and eating out. Overall the costs are quite low and the enjoyment is high. Many people when they are trying to save money often focus on small things but end up wasting a lot of money on large purchases e.g. cars, house, etc. If you can be super frugal on big ticket items e.g. car and house then you can be more loose with small ticket items such as coffee or even avocado toast. Focusing on small spending to give you joy is similar to the concept of putting up barriers to spending money. By spending a small amount, you are limited by how much money you end up spending. For example, if you are obsessed with luxury cars, you can easily waste $500k in one transaction if you buying different types of Porsches whereas if you are obsessed with coffee then you are wasting $6 per transaction trying different types of coffee beans. You are much less likely to lose a large sum of money being obsessed with coffee vs luxury cars.
Razor and blades model
Wikipedia defines the razor and blades model as follows: “The razor and blades business model is a business model in which one item is sold at a low price (or given away for free) in order to increase sales of a complementary good, such as consumable supplies…. Common examples of the razor and blades model include inkjet printers whose ink cartridges are significantly marked up in price, coffee machines that use single-use coffee pods, electric toothbrushes, and video game consoles which require additional purchases to obtain accessories and software not included in the original package.”
We need to be very careful of future ongoing costs if we want to be frugal. It is easy to see the razor and blades model being applied for razors, printers, etc but there are many ongoing costs with purchases such as a house or a car, which needs constant maintenance. By contrast, buying a coffee when you are at work or avocado toast during the weekend has no ongoing cost. Once you consume your $6 almost latte, it is gone. There is no asset to maintain, no depreciation on an asset, no upkeep or ongoing costs.
This is why I like to avoid subscriptions. It is very common nowadays for subscriptions to be offered for everything. For example, I have noticed that for Uber there is a subscription option. This applies for just about every app or software e.g. ChatGPT, various shopping apps, Netflix, Spotify etc. These subscriptions take advantage of the convenience of just letting the payment automatically go out of your credit card. It is much harder to actually buy products. This is why, for example, I no longer have a subscription to Spotify and instead rely on Bandcamp for music. Spotify requires ongoing payment whereas with Bandcamp you have to actually purchase music. With Bandcamp there is no ongoing costs whereas with Spotify there is. Although I have praised Netflix in the past, after recent price hikes I have now cancelled my Netflix subscription and instead actually buy any TV shows or movies on Google Play if I want to watch something. Having to actually pay for a movie means that I only buy what I really want to watch and there is no ongoing payment. When I had Netflix I would often just watch as much as possible in order to get my money’s worth, but now demand dictates supply rather than supply dictating demand.
As mentioned before, this is another example of creating barriers to spend. Having subscriptions or ongoing future costs reduces barriers to spending. Money just gets taken from you.
I should mention that this is another reason why I like investing in ETFs rather than property. Many of my friends who invest in property talk about having various costs and taxes being applied to them. There are many ongoing costs associated with owning a property. However, with an ETF, generally you just buy it and there are no ongoing costs.
Being deliberately disorganised and ignorance when shopping
I know of someone who maintains a shopping list, which is in the form of a spreadsheet. They compare prices of goods in different places. They are always online checking prices. When there is a sale on, they go and hurriedly bulk buy the product. This person ends up buying a lot and therefore ends up spending a lot.
For me, I never maintain a shopping list. If I need to buy something, I just rely on my memory. I also often let myself wait till the last minute to buy something. I am deliberately disorganised and ignorant when shopping, which makes it harder for me to spend and put up barriers to spending. It is also good for my mental health to try not to think too much about shopping, discounts etc.
Further reading: Are Discounts and Sales Worth It?
I Live Off Dividends 