We have recently been discussing the concept of investing, which involves putting money into a venture with the expectation of making a profit. Whether you invest in financial securities, property or a business, the general idea is that you decide to forgo spending money in the present, in order to secure some benefit in the future.
Many people will admit that they find it difficult to invest, as they would prefer to get the instant gratification of spending money than waiting to reap a potential reward in the long term. Why invest and risk your money, they think, when you can buy something right away and enjoy the fruits of your labour immediately?
Some time ago, a reader e-mailed me about the concept of investing versus spending. He introduced a simple but thought-provoking idea — What if more people were to say, “I invested my money on an item instead of I spent my money on it”, would that encourage them to make wiser spending choices?
While most persons usually look at investing from a money-making point of view, the dictionary definition of invest actually includes ‘to buy something whose usefulness will repay the cost’. This wider description of investing could therefore be applied to regular spending activities.
What are some of the ways in which you can invest wisely when you spend money?
Invest in value spending
In the financial world, the term ‘value investing’ refers to the act of purchasing an asset that is selling at a cost below its true worth. The idea is that you are actively looking for assets which trade at prices less than their real value, as they may not yet be popular in the market. Value investors can buy assets at low prices and resell for profit in the future.
In value spending, you are more concerned about an item’s true worth instead of just considering the price tag. Some persons will refuse to buy a product with a higher cost, as they think they are saving money by buying a less expensive option. As the saying goes, ‘You get what you pay for,’ and sometimes the cheaper deal wears out faster or doesn’t provide a satisfactory result.
Value spending is especially important when purchasing things that you need to deliver dependable service or last a long time, such as appliances, computers, shoes and certain kinds of clothes. By choosing quality instead of quantity, you can make a better investment of your spending money.
Be careful with bargains
There is nothing as exciting for a shopping aficionado than seeing a sale sign in a favourite store, as it presents an opportunity to profit from a great discount. On the face of it, sales should help you to buy something that will supply a greater benefit than the cost. But in some cases, bargain hunting can actually end up being more costly.
The thought of getting something for less can tempt you to buy several items that you really don’t need in the first place. It can also be easy to be ‘penny wise and pound foolish’ when looking for a shopping deal. How many times have you driven miles out of your way just to save a dollar on the price of gas? The price benefit probably evaporated in the cost of travelling the extra distance.
When making a bargain-buying decision, make sure that you are not re-directing money from necessary expenses in order to get the deal. Also, make sure that the bargain item is satisfying a need instead of a want; consider whether it really will deliver a value that will justify even the reduced cost.
Spend where you get back
Another way to invest when you buy is to look out for opportunities to get something in return for your spending dollar. A simple way to achieve this is to shop at places that give cash incentives, such as supermarkets with membership programmes that offer you points every time you shop. After a few months, you could have enough to purchase groceries free of cost.
You can also use credit cards that give incentives such as cash rebates, where a percentage of what you spend is given back to you. Some cards offer frequent flyer miles with every dollar charged on the card, or give points that can be redeemed for goods and services at participating merchants.
This concept can even be expanded to where you are actually paid to buy from a supplier. Affiliate marketing is a selling strategy in which a company rewards its customers with attractive bonuses and earnings directly from their own purchases and from those made by persons they recommended to the business.
So if you would rather shop than invest your money in the traditional way, there are various ways for you to reap a profitable benefit from your purchases.
Copyright © 2011 Cherryl Hanson Simpson. No reproduction without written consent.
Originally published in The Daily Observer, September 8, 2011
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Cherryl is a financial consultant and coach, founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmartonline.com. Contact Cherryl