Tuesday, April 10, 2012

The option value of foregoing a purchase

Mustachianism is about trade-offs. Really it is about striking a balance between consumption and other areas of our lives. Many peoples' lives are heavily weighted toward consumption over work-life balance, or family, or leisure time; so naturally moving toward balance is the same as moving toward frugality. But rather than trying to consume as little as possible, I think Mustachianism is more about consuming at the right level.

This post is starting off more philosophically than I had intended. Let me get to an example that's currently on my mind of two recent purchases I made off Amazon. The first was a bundle of clothing, which I want to argue was a Mustachian purchase through-and-through. The second, a decidedly non-Mustachian purchase, was a pair of mugs intending to replace one of our broken ones.

First, the clothes. I've never enjoyed clothes shopping, or really thinking about clothes at all, so I've never considered clothing a luxury or non-necessity purchase. Don't get me wrong, I know how it could be, if you're always buying clothes. I'm saying when I was a kid my mom would take me shopping maybe once a year to replace the stuff I outgrew, and then when I got to high school it was awesome because I stopped growing and I could wear the same clothes year after year. I could be making this up, but my current cohort of shorts is upwards of five years old.

That's where I'm coming from on the clothing front. Usually I needed to will myself to schedule a trip to the clothing store because of how painful it was. Clothing does wear out and need to be replaced.

I can count on one hand the number of times I've bought clothing since I started my working life. I spent maybe $500 in that amount of time, $400 of which was an entire wardrobe of collared shirts and slacks for starting my job. Two of three pairs of my jeans I bought at Costco (one got too big, so now I use a belt rather than getting rid of it).

Why am I telling you all this about clothes? Because inadvertently this month I stumbled upon the very important concept of option value in foregoing a purchase. My wardrobe can use some updating, and this has been true for several months, but I've been putting it off because of my psychic aversion to clothes shopping. If I were a normal person, and if I had a high clothing-consumption lifestyle, I would have just kept making trips to the mall until everything I wore was stylish.

I got an email from Amazon earlier this month that they were offering a promotion on clothing. Now, I regularly read through a bunch of discount advertisements. Very very rarely will a company offer me something I'm interested in (the rule is that I would have already been intending to purchase the item anyway). This one was different: Amazon is offering $10 off $50 of clothes sold by Amazon itself.

Twenty percent discount is pretty good. So I bought six pairs of white socks, two white undershirts, and a pair of jeans for something like $55 ($45 with the discount). I especially liked the part where I didn't have to leave my house.

Here is my point: the act of waiting to purchase those clothes, even if they all would have qualified as reasonable purchases, wound up saving me $10. That's pretty good! And it's another reason why, even if a purchase is reasonable, there's always a reason to wait.

I did make a second purchase at around the same time, though, which is pretty much the opposite of the option value I described. Double-wall insulated glass mugs, which I bought for my girlfriend as a Christmas gift, and which honestly are awesome mugs that I've been really happy with. One of them broke a few weeks back and it's unfortunate that now we only have one.

I shouldn't need to list the reasons why this isn't a Mustachian purchase. They're expensive, and we already have plenty of mugs. But the reason I want to highlight is that I immediately forewent the option value of waiting on this purchase. What if I see the same mugs at TJ Maxx next time I'm there? Too bad, I already bought them. What happens when they go on sale, or someone needs to get rid of theirs, or any one of a number of things? Oh well. Hell, and I didn't even think of this until right now: what about if they sell them at Bed, Bath & Beyond, where I have many 20% off coupons? Oops.

Let this tale of two purchases remind you of the option value in foregoing your consumption as long as possible.

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