The High Price of Being an Early Adopter

I learned a valuable money lesson early in life. I was about 14 years old, and the latest thing in watches had just arrived. Not an LED digital watch, not even a conventional LCD digital watch, but a multi-function LCD watch with stopwatch, alarm, hourly chime and other features I can't even remember. When this watch came on the market, I absolutely had to have one, regardless of cost. I used money from my savings to buy one at a then ridiculous price. When I brought it to high school, everyone wanted to see it, and for a few weeks, I proudly showed off this marvel of technology to a rapt audience. Soon afterward, the adulation of being at the cutting edge of technology faded, as the price of LCD watches tumbled, and within six months or so, these 'cutting edge' watches began appearing on more and more wrists. My financial lesson was that the cost of being an early adopter was extremely high and the cost-benefit equation was skewed excessively toward cost and less toward benefit.

Apparently this lesson has not been learned by a huge percentage of the world's population. Expensive lessons like paying a premium over list price for the New Beetle (although easily affordable by Jerry Seinfeld who was rumoured to have paid a premium to get one) or the Chrysler PT Cruiser when first launched, only to see these cars being virtually given away by their manufacturers these days as the demand has dried up.

Or like the owners of the first 50-inch rear projection TVs, behemoths that required not only about $5,000 in cash but also about four men to lift it and move it into place in your home. These are virtually obsolete and worthless now. I'm sure the owners of the first ($1,000) DVD players must be chagrined to see them selling for less than $100 a year or so thereafter, and now routinely sold for less than $30. Likewise the owners of the first flat screen LCD or plasma TVs.
Having experienced that painful financial lesson many years ago, I no longer buy anything when it is first introduced, but rather assess how much I really need (or want) it, and if so, when will be the entry point, price-wise ......... and wait to buy it when a newer model (often with very little technical modifications, and a lot of cosmetic changes), refurbished or a gently used one appears on the market.

In doing so, I now own/have owned high-end electronics, sports cars and sporting goods equipment for a fraction of their original price by being patient. For example, if you want to buy an imported sports car like a Saab or Volvo convertible - wait a couple of years, and buy a two or three year old model for usually almost 50% off the original list price. Or try asking a sporting goods salesperson what the main improvements between this year's running shoe, golf club or tennis racket versus last year's model are.

So, if you want to save your hard-earned dollars, don't be so quick to rush out and buy the latest, new fangled thing on the market. Your patience will pay off handsomely.

This Month's Quote

"He who knows he has enough, is rich" - Lao Tzu, Chinese philosopher, and father of Taoism and author of Tao Te Ching

Who's Happier - Residents of Big City or Small Town?

Awhile back, I wrote a post about regarding the cost of living in a big city versus a small town (or city). I also wondered if I could be happy living in a smaller community when I was used to living in large cities all my life. Even moving from a city of 5 million residents to one of less than half a million creates some angst for me, despite numerous Hollywood movies such as Doc Hollywood, Baby Boom and the recently released New in Town promoting stories of high-powered city executives and professionals finding refuge and love in smaller towns and cities. A Canadian survey conducted a few years ago stated that the happiest people in Canada could be found in the small New Brunswick city of Saint John. Having spent some time traveling in smaller cities and towns in Eastern Canada, there is a noticeable decrease in the level of pace of life, as well as stress and anxiety.

What exactly contributes to my happiness if I change locales? Will I miss having so much variety and diversity at my doorstep? I know I will miss the excellent library facilities, competitive prices in supermarkets, gas stations and retailers. I will miss easy access to good sushi. Will I get bored in a smaller community? Friends of mine believe so, especially since I am single and love to socialize. What of job opportunities - will I be content with the smaller pool of career opportunities?

What I won't miss, I think, is the noise and traffic of a big city, accompanied by drivers, commuters and transit users with short fuses. When I was visiting Newfoundland earlier this year, I noticed that many roads (even main thoroughfares) have a maximum speed of 50km or 60km, and it was not unusual to see someone contentedly driving 30km per hour! I am content to never see huge armies of obnoxious, pretentious and self-centered individuals. I won't miss the price gouging on things such as parking, garbage collection as well as constantly rising property taxes and user fees. Not to mention sky-high property prices.

If I do make the move, I need to be confident that it is a lasting happiness. I just finished reading an interesting book called The How to Happiness which claims that 50% of your happiness can be attributed to your genetic make-up, 10% by your current circumstances, and the remaining 40% within your control. The book backs this up with scientific data and research. It also says that a major change in your situation (new relationship, moving somewhere, new job etc.) only provides a temporary boost to your happiness, with a subsequent shift back to your mean/set point of happiness levels. So, I continue to ponder and research such a move.

How Tech Companies Make Cheap Technology Expensive

You have to hand it to technology companies - they hire smart people, in almost all facets of their business. Why do I say that? Well, if you think how much cool technology has been introduced in the past three decades, it's been quite breathtaking. MP3 players, iPhones, Blackberrys, organic LED TVs and thousands of other amazing technologies. But it's not only their scientists and designers that are smart. Their marketing staff are shrewd as well. Consider the strategy by printer manufacturers. They sell you an all-in-one multi-function printer for less than $50, so that you can scan, copy, fax and print with one compact machine - brilliant. Buy a computer, and usually they'll throw the printer in for free or a ridiculous price that you can 't refuse. I've seen brand-new ink jet printers selling for less than $20!

What they don't tell you, and as astute consumer we should be wary of before we purchase, is the rate of toner/ink use and the replacement cost. I have one of these Epson all-in-one machines that cost less than $60, but whose four-colour replacement cartridges cost over $60. True, you don't have to replace all four at the same time, but they do diminish at a fairly equal rate (unless you print primarily in black only and in draft mode format). Your option is to take your empty cartridges to a toner refill kiosk where you can refill the empty cartridges at about a third to half the regular cost of buying the brand name replacement cartridge. So, the consumer's dilemma is whether one should buy a brand new printer which is about the same price of the replacement cartridge, but then you have to reconfigure your computer, install the printer drivers and then get rid of the printer. Throwing it in the garbage makes you feel guilty (from an environmental perspective) , so you just grudgingly buy the cartridge. Smart .... and sneaky. What would I do? I have purchased refill kits from eBay and successfully topped up my cartridges. However, it can be a messy affair.

Even sneakier was when IBM introduced their cheap Laser Writer 'E' low-end laser printer. In Tim Harford's book, "The Undercover Economist", he relates how the 'E' was almost identical to the more expensive Laser Writer, except they installed an additional chip in the 'E' to slow it down. Those who wanted a laser printer but were extremely price-sensitive would buy the 'E' anyway, but others would pay the extra to get the faster model, even though they were almost identical. It was cheaper for IBM to adopt this strategy than to design two completely different printers. Ironically, it was actually more expensive to produce the cheaper machine, as they had to spend time disabling functions on the chip to slow it down. It is not unlikely that technology equipment reviewers, salespersons and even friends and colleagues would recommend that one buys the faster printer for a few dollars more. Those few extra dollars go straight to IBM's bottom line profit. According to Hardford's book, Intel has also done this with some of their processing chips, as has many software companies. Consumers seem to have an aversion to buying the cheapest or 'base' model of anything, so when confronted with a lower 'Celeron' chip versus a 'Pentium' chip, one might tend to move up a little as insurance in case you need the extra processing power when most people probably don't. Now it's the battle between Dual Core and Core2Duo processors - confused? Same goes with Microsoft's Vista Home Basic versus Vista Home Premium. The majority of users only make use of the basic operating functions, but most will buy the upgraded software. This is little different to upselling you find at restaurants and movie theatres - "would you like fries with that?" or "Can we supersize your fries/popcorn order - it's only an extra 50 cents?" - all of which goes to the company's bottom line.

As with much advertising and retailing, the consumer is confronted with their insecurities and fears. That is that one thinks they need more power/capacity than they really do. Hmm.... what will I do if I am faced with a situation where I would need to print documents at 6 ppm (pages per minute) but my printer can only spew out paper at 4 ppm? My advice is that every consumer should understand what they want the product to do for them the majority of the time, to do some reading or research before they buy, ignore the marketing noise around them and stick to their budget.

Bringing Maslow`s Hierachy Back to Normal Levels

One of the reasons why the world has gotten themselves into such a financial pickle, is the elevation of the most basic levels within Maslow`s hierarchy of needs. As a refresher, in 1943 Abraham Maslow drew up a theory that proposed that human motivation was driven by five needs, that was shaped in a pyramid. At the bottom, was basic Physiological Needs such as food, shelter, water etc. Once those need were fulfilled, then humans would aspire to move up to the next level which as Safety Needs - of our health, bodies, family etc. Once that need was fulfilled, then we would move on to the next level which as the need for Love and Belonging, followed by Self-Esteem and finally, the pinnacle of human needs which was Self-Actualization.

Here is the Wikipedia explanation of Maslow's Hierachy of Needs:

http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs

However, what happened was that society, in its insatiable greed, has had difficulty getting past the lower levels of needs. For example, instead of basic shelter, some people have strived for a MacMansion and has sacrificed their other needs, putting their health at risk (Safety), straining or excluding relationships (Love and Belonging), doing jobs they hate just for the money (Self-Esteem) and acting contrary to their authentic self (Self-Actualization).

Sure, I may sound preachy, but I've seen enough and read enough to know that I am not far from the truth. The silver lining on this current dark and ominous financial cloud, is that many people are reflecting on what went wrong, what is important to them, and re-evaluating their value system. Instead of making the bottom of the pyramid large and unattainable, many people are trying to satisfy the most basic needs and move up the pyramid. I hope that this is a portent of things to come and a welcome change to a materialistic and consumer-driven society.

How a List Can Save You Big Dollars

One of the reasons why many people wind up spending more than they make is that they do not keep track of their expenditures, especially the small purchases. But these seemingly insignificant purchases add up to big dollars. Many of them are impulse purchases which, if one is not disciplined, will leave you susceptible to retailers efforts to put these impulse items in front of you at the check-out counter.

Research shows that more than half of all grocery purchases are unplanned, impulse purchases. That's why people who compile a grocery list and stick to it will spend far less than those who go to a grocery store without a list. 'Spur of the moment' purchases tend to be more expensive and is based on what someone wants at that time, rather than what someone really needs (that is on their grocery list).

Last year, a Toronto Star columnist decided to find out why she couldn't save any money. She tracked every single transaction and expenditure for a month and then reviewed where the seepage from her purse occurred. She was shocked to find that every time she went to the drug store, she would walk out with a basket full of small purchases, e.g. a bottle of nail polish,some bath salts, a magazine etc. These added up to well over $200 per month, or almost $2,500 per year. Women also tend to go on fashion shopping trips, often with nothing specific in mind.

Men are not immune to this, as they are extremely susceptible to electronics, hardware and sports stores. Even worse is that men have been known to purchase cars on an impulse! Research shows that almost half of hardware store purchases are spur of the moment purchases.

Despite the tough economic times, there are so many sales and promotions that present temptations to potentially overspend. So as you go and do your shopping, prepare a list and stick to it. It'll save you dollars when you need it most.

Save Dollars by Not Making the Unnecessary Necessary

I was reading a motoring magazine article recently which was reviewing a new 'luxury' vehicle when it struck me how companies have long made extra sales and profits by making the unnecessary seem like a necessity. There are cars that can now parallel park themselves, ones with rear-end cameras, computer controller displays in the dash etc. It appears that the public has bought into gadgets that were once considered luxuries such as automatic transmission, power windows and door locks, to be considered as essentials. The American auto industry is in trouble partly because it spent so much of its time (and money) putting in fancy gadgets in their cars at the expense of build quality and reliability. Even in the 80's, American car manufacturers would put in digital dash boards, and power everything from doors, windows, seats and seat belts. Unfortunately, the public bought it and paid dearly for it.

So instead of buying an item because you NEEDED to replace it, people were buying things because they wanted to replace it. Advertising, peer pressure or design were all instigators to wrestle money from consumers' pockets. Heck, even my elderly parents wanted a new flat-screen LCD Television when their old CRT set was still in perfect working order. I guarantee that with their eyesight being the way it is, they could probably not tell the difference between the new and old TV set.

Not only is this type of expense a drain on one's bank account, the frivolous waste brought on by rampant consumerism has been extremely bad for the environment. Tens of millions of old CRT televisions and computer monitors are being thrown away annually, and finding themselves in landfills in poor countries used as dumping grounds and whose populations`health is now being adversely affected.

Many new technologies such as MP3 players are designed with a limited lifespan, so that if it breaks down, it is usually cheaper for one to buy a new one that to repair their old one. Read Internet forums on iPods and you will find consensus that their batteries don`t last longer than a couple of years, whereupon they will more likely be discarded and a newer version purchased. Longevity is no longer important to many companies because longevity no longer produces continual sales. Cellphones come upon with new `must-have`or `necessary`features that render perfectly good phones obsolete in their owners`eyes.

If you want to save money, assess what your real needs are, ignore the advertising, peer pressure anfd hype and buy what most closely fits your needs, not your wants.