Sunday, September 19, 2010

How to make decision to buy? - Buying Decision Guide

I started this topic because I met someone who may influence my buying decision process during my China’s trip. Well, read on and see if that will change your mind too. Here are the 3 steps generic buying decision guide that I come out with...

Almost everyday we come across to make decision whether we should buy or NOT to buy something. Should I buy this product? Should I buy this insurance? Should I buy this house? Should I buy this stock? Should I buy this unit trust? Wow, there’re just so many things we want to buy but how do we make decision? What is the guideline?

Step 1: Understand Your Buying Purpose

The first thing that you should all do before you start buying stuff is to understand the purpose of buying a stuff. That stuff serves certain purpose, what is that? Don’t ever fall into common trap that you do NOT even understand the purpose of buying a stuff. Of course in order of to understand the purpose, you must also need to understand and familiar yourself if the products. Keep in mind one thing very important is a same product may serves different purpose to different people. So you still need to identify your own purpose of buying the product and not to be influenced by the person who sell you the product.

No matter what, there MUST be a purpose. Even though if you buy a stuff for the fun of it, then the purpose is for “fun of it”. It is as simple as that. If you really have no idea of the purpose, then you shouldn’t buy that stuff at all!

Step 2: Does the purpose meet your needs?

Now, you understand the purpose of buying a stuff but is the purpose justifiable? Is the purpose really meet you needs? Is this what you’re really looking for? Do you really want to buy a stuff for the purpose of just for the fun of it? Well, it depends on much you value the “fun” then. In reality we have many needs and what is the most important thing is to prioritize our needs. Do you have needs that you haven’t met yet? Then, why don’t you buy stuff to meet those needs first?

For example, buying laptop or buying an iPad is more critical to you? Which one serves the purpose that really meet your needs the most? If I used $2K to buy an ipad, what are the things I can buy to even more to satisfy my needs with the same amount of $?

Step 3: Are you affordable to buy?

Once you understand the propose of the product that meets exactly your need, it is time for you to buy. However there is one question, is the product too expensive to you? Well, this probably the most subjective thing. What is considered as affordable and what is not? Well, this is my own rule of thumb for a very obvious reason that you are NOT affordable to buy a stuff when:

  • You need to take loan to buy (except for housing)
  • You need to take monthly instalment to buy (although is 0% interest)
So, what if for those NOT so obvious reasons? Does that mean you can buy? Yes, as long as it doesn’t affect the key purpose of your savings. Theoretically in personal finance, there are few purpose of your saving. You save for the purpose of:
  • Emergency fund – E.g. 6 months of your salary fund for family or your personal emergency. Is this fund affected?
  • Investment fund – Every month you invest part of your savings or earning. Do you still have $ to invest monthly?
  • Insurance fund  - Every year, you need to reserve some money for your insurance premium. Is this affected?
  • Other funds – You’re planning to buy something expensive with this fund that you have save for the past few years. Is this affected?
As long as buying this new stuff that doesn’t affect any of the saving purposes that I mentioned above, you can go ahead to buy. Why not? However being said so, if you still has loan or credits that you haven’t pay yet, you may need to seriously consider whether you should settle your debt first. I would pay up all the debt first before I start purchasing any new thing! Good luck!

[Updated on 12 Dec 2010]  You may want to revisit step 2 or perhaps step 1 as well if you find that you're not affordable to buy in Step 3. Is that something that you really need? Is there any cheaper alternatives? Good luck!

What do you think of these 3 steps buying decision process? Does that sound reasonable to you?

Wait a minute!

Speaking or writing is always easier than doing. What if you meet the following people who want you deadly to buy their product? What if your wife or girl friend wants you support her to buy things from her? What if your family member are selling stuff? Would you support them to buy stuff that you don’t need at all? or you make yourself that you need the product?

What about a very pretty girl that have ever met come and approach you to buy something from her? Have you ever approached by a sexy pretty salesgirl? What is your reaction usually? What if the sales girl goes beyond the line especially when your wife is not around? Wow!

Well, in reality we don’t buy stuff based on our logic – like the 3 steps process I mentioned above. We buy stuff based on our emotion and yes, it is love too. Either you fall in love with the product with no reasons, or the sales girl. You make decision by your emotion and you usually don’t think so much without considering much.

Do you agree? What are your experiences?


Jayce said...

Hmm.. Why no pretty sales girl approach me? Maybe I seldom go out. And stay in front of PC all the time. ^_^"

ChampDog said...

You sure or not? What about receiving a call from banker?

Maybe you should make an appointment with her... lol

Kris said...

Interesting topic regarding pretty salesgirls..

Hmm..IMHO being pretty does have a very very big advantage in the marketing line. This also applies to handsome male marketers.

So far, no pretty girls has ever managed to woo me to buy something i don't want to buy..haha..

Take note that usually, single and available pretty marketers wore a ring on their wedding finger to deter pursuers :P I met a few that told me this "trick"

ChampDog said...

Yes, I agree with that too that pretty and handsome folks are always advantage in marketing & sales. Of course is also good communication skills.

Are you still single? This probably applies to those who're still single. It could be an investment to them actually. I'm wondering what if I"m still single, will I act differently? Hmm...

Oh really? Nice trick then. But I think some don't care at all especially in this generation.

Alvin said...

emotion and the feeling of actually buying and owning something. just compare Apple iPod and Sony Walkman. one has more features while the other one looks cool, classy and serves more like a trend than a mp3 player.

so u know who won la, in the end. :P

a lot of companies nowadays associate emotions with the products. coz they know people buy with emotions.......wont think so much logically. if everyone is like me...took me 12 months to consider purchasing mac.....i think economy crash already lo

ChampDog said...

Yes, that's why I said in reality majority of people buy stuff based on emotion, not really on logic.

1 years to consider to buy Mac? So did you buy at the end? If no, then it is actually > 1 year because you don't know when you're going to buy. :)

Yes I agree with you. I'm like you. If everyone is like us, I think the economy will crash already. lol!

kampunginvestor said...

Seems like i have fallen to many times to beautiful sales girls. Any beautiful sales girls have something to sell Now? Come find me.. ^^

ChampDog said...

Perhaps you're want one of the luckiest guy in the world... :) Handsome guy okay or not, btw? lol

kampunginvestor said...

@Champdog : Hey brother, i am sure you get to meet beautiful sales ladies often as well right? Those selling cigarettes at pubs are hot chicks! wakaka..

So you are saying you are handsome? Jadi kawan boleh la brother! *wink!

ChampDog said...

Yes, beautiful I"m not so sure but sexy definitely yes. Hahaha...

Hahaha, kidding kidding... I think I"m not handsome anymore as compared to when I was still young because no girls approach me now anymore... :(

TC Khew said...

Wow, it is pretty hard for me to fulfill all the 3 steps before making the final buying decision. First 2 steps are easier to achieve. But for me, step 3 is the hardest one.

I think a lot of people would still prefer 0% instalment plan if there is a choice to do so, eventhough they may have a lump sum in hand to pay off the full payment of their desired products. As this method makes us feel less painful when coming to payment. Insurance fund is easy to sustain as we 'lock' the fund with the insurance company. So we have to continue paying no matter how. Investment fund can also be locked well if we make it a 'standing instruction' to the investment company. For me, 6-month emergency fund and the fund for misc spendings (last one) will be the hardest to sustain, as these funds can easily be liquidated compared to those 'locked' fund. So most of the time, when I decide to buy an expensive product, most likely my emergency fund and the 'misc' fund will be affected.

I believe this scenario proves that I do not make enough money to fulfill my buying desire yet, if I strictly follow your formula. Seems like it is pretty hard to achieve your 'smart buying guide'

ChampDog said...

Step 1 is probably the easiest, follow by Step 2 and Step 3. Step 2 itself may not be that easy as we we thought because we often buy stuff that we don't really need. It is also depending on how you want to prioritize your needs given that you have certain goals in mind. If you're not clear on your financial goals for example, you may end up everything is a need for you.

Not surprise that the step 3 is the hardest because it is often the things that we really want to buy is always NOT cheap. :) 0% installment sounds interesting but if you feel painful to pay one lump sum, that is a good indication that you're actually not afford to buy.

6 months emergency fund is just a guideline and it is vary from person to another. Ultimately, if you lose your income now out of sudden, how long do you think you can get back your equivalent or more of your original income? That answer is the period of your emergency fund. You can put those funds under fixed deposit or bond funds (at least this is what I do), not necessary must be cash.

If we found that we are not affordable to buy, probably we need to go back to step 2 and see do we really need that stuff. Are there any other cheaper alternatives? Although I don't mention here, I think the step 2 needs to be revisit again especially if we fail to fulfill step 3.

Thanks for the sharing and comment! I appreciate that.:)

TC Khew said...

I agree with your opinion, stating that if we feel painful to pay one lump sum, that is a sign to show that we are not making enough money to enable us spending freely, or not afford to buy.

ChampDog said...

Making more money is focusing in attack zone while saving or live within our mean is focusing on defense zone in personal finance.

So, it is very subjective depends on which strategy best suits you. Very rich successful people usually focus more on the attack zone. :)

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