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الجمعة، 14 ديسمبر 2018

Personal Finance 101: A Thorough Guide to Price Comparisons while Shopping

Mindy writes in:

Is there a simple trick to doing price comparisons at the store? I feel like I am almost always turning to my calculator to see what option is cheapest and then it takes forever to shop.

This started out as a mailbag question and, as they often do, the answer grew and grew and grew until it was clearly a post of its own.

To put it simply, there are a healthy handful of “tricks” for price comparisons while shopping. Using them all together makes most price comparisons really quick, at least for me, but it does take some time to really get them.

Before we get started, it’s worth noting that the best tool for quick comparison shopping in the grocery store is to simply have a strong grasp on basic mental arithmetic, particularly multiplying two single digit numbers together and dividing a two digit number by a one digit number in your head. If you can, being able to divide a three digit number by a one digit number is really useful, too.

This is one of those real world situations where the things pounded into our heads in grade school and middle school really pays off in adulthood. Those multiplication and division tables and flashcards can really pay off if you retain that skill.

Let’s dig into some strategies.

Focusing on the Price Per Unit

Whenever you buy something nonperishable – meaning it won’t go bad in any realistic timeframe just sitting in your home – perhaps the most valuable point of comparison is the “price per unit.” It’s basically a nice way of saying “How much will this item cost each time I use it?” Obviously, you want that to be as low as possible.

Some stores post the price per unit right on the sticker or on the shelf where the item is found. You would think that would be convenient, but it’s generally a bad idea to trust the store’s “price per unit” without looking closer. Why? Stores in some states will often use different units with different products when showing you a “price per unit.”

In short, price per unit is really useful for comparing things, but only when the unit is the same. You have to figure out the consistent unit that the two items are using, first and foremost. Usually, it’s easy, but not always.

Let’s break down what that all means.

Let’s say you want to buy some laundry soap. There are a bunch of different brands and a bunch of different sizes. How do you determine which one is the right one to buy?

Some brands clearly indicate how many “loads” that you’ll get out of that jug. Other brands focus on how many ounces are in the bottle.

The first step is to have a consistent “unit” of comparison. Since an ounce of one soap won’t necessarily clean as much as an ounce of another soap, you’re better off looking for how many “loads” that each container claims to be able to wash. “Loads” are your unit.

What you do then is divide the price of that container by the number of loads. So, if a jug of soap costs $17.99 and claims to wash 90 loads, you’d divide $17.99 by 90 and get $0.20 per load. Another jug costs $24.99 and claims to wash 120 loads. There, you’d divide $24.99 by 120 and get $0.21 per load. Yep, the first brand is a better deal.

In other words, if you make sure the unit is the same among different products, then it’s just divide the price of each option by the number of units in that option and compare those results.

Again, if you’re strong with the mental arithmetic, the only tricky part about this is making sure the units are the same and doing a bit of quick estimation so that the multiplication is easy.

Quick Estimations

When I’m actually doing this in practice, I’m almost always using some quick estimations rather than pulling out the calculator. I’ll look at the price, look at the number of units, and estimate.

Rule #1: Always round anything ending in 8 or 9 up to the next dime or dollar or ten. If something is $29.99 round it up to $30. If something is $24.99, round it up to $25. If something is $3.99, round it up to $4. If something is $2.49 round it up to $2.50. This makes the math a lot easier and makes no meaningful difference when determining what product to buy in virtually all situations.

Rule #2: Always round the number of units so that you only have one digit to worry about. For example, if you’re looking at a box of 68 trash bags, round it to 70, or if it’s 72, round it to 70. However, if something only has 8 items in the package, just stick with 8. When I do this and find things are very close in terms of the final price per unit, I give the nod to the one with more items, particularly if I rounded it down.

Rule #3: Add up the smaller packages until they equal the big package. Quite often, a comparison becomes easy if you just add up three or four of the small packages to see how it compares to the big. For example, if you’re comparing a package of 6 rolls of toilet paper to a package of 24, think of how many packages of 6 you’d have to buy to equal the pack of 24, which you can figure out by multiplying (that mental math again) or just counting by 6s. You can literally do the same thing with the price, especially if it’s a single digit price and it’s easy to count. So, if the 6 count package is $1.99 and you used the above rounding rules to round it to $2, you can just count by twos four times to see that four 6 count packages would cost $8. Compare that to the price of the 24 pack to see what the better deal is.

Rule #4: Do a side by side comparison of the numbers before actually dividing. Once you have a round dollar amount and a round unit amount, you can usually figure out pretty quickly which is the better deal just by comparing things.

For example, the other day, I needed trash bags and noticed that there was a box of 20 bags for $4.99 and a box of 72 bags for $15.99. Looks like a lot of digits. So, I did some quick estimations. I turned the price of the box of 20 bags into $5 and the box of 72 bags into 70 bags and the price of the bigger box into $16. So, now I’m looking at 20 bags for $5 or 70 bags for $16. Real quickly, I can tell that if I buy three boxes of the 20 bag box (getting me 60 bags), it’ll cost me $15 but if I buy four of them (getting me 80 bags), it’ll cost me $20. However, I can get 72 bags for $16 – compare that to 60 bags for $15. Going for the big box gets me 12 more bags for $1! Without doing any real math – just counting by 2s and counting by 5s – I can tell the 72 bags are the cheaper option.

It Becomes Instinctive Over Time

These little steps become more and more instinctive over time as you do them more and more often. You become really adept at quick rounding and quick multiplication of single digit numbers, and you learn that the result of that quick comparison virtually always points you to the best price per unit.

The only part that takes time is making sure you’re actually comparing the same units, which means you have to glance at the package itself. I’ve found that price per unit numbers on the store shelf stickers are occasionally misleading, so I ignore them.

Another advantage is that once you figure it out one time, you can rely on that outcome for quite a while. I generally stick with the results until I happen to notice that the version I usually buy has gone up in price, then I do the comparison again. I don’t do such a comparison every time I’m in the store, as I’m usually just snagging the item I already figured out was the best bargain at the price I’m familiar with. It’s when the price has changed or the item has changed that I take notice.

Learning this little skill will save you a lot of money over time without a lot of effort. It’s all about estimation and quick mental math.

Good luck!

The post Personal Finance 101: A Thorough Guide to Price Comparisons while Shopping appeared first on The Simple Dollar.



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