AAR25 - How to Make Smart Purchasing Decisions

23:07Andrew Sather:place to be i'll say that um i would say that it it didn't take as long as uh as i would have thought it would and it didn't take as long as i think a lot of people out there think it would and is one of the things that stops them from going down this road and having things automated having things set up ahead of time because i also think maybe there's a better word that i need to start using instead of automation because i think automation sounds very fancy and complex and like I don't know, you need computer skills or something like that. But automation is literally opening whatever account we're talking about.

23:39Andrew Sather:Could be direct deposit with your employer. Could be your 401k account, something like that. Opening that up, going to automated investments or automated transfers or something like that, some adjacent term to that. And choosing how much money you want to go to X place on X frequency and hitting save, and now we'll just do it for you. And so once I realized that that was an option, which I believe that the first time that I was introduced to financial automation aside from something like a 401k, because a 401k, when you set it up, it's already automated by itself. But outside of that was probably when the friend mentor, I would say, mentor both career-wise and mentor in terms of finances, who first showed me investing, he had money automatically moving over to his brokerage account.

24:29Andrew Sather:he was investing in stuff like GameStop and other stocks like that that I might not have wanted to in hindsight but regardless he had money automatically going to that place and that showed me oh this is an option where he doesn't have to think about this and it already goes there and I feel like or know that investing is a good choice in one way or another and he feels comfortable in his financial decisions to invest the way he is and he's got money automatically going there and it took him no willpower to make that happen and once I saw that as an option and went to my brokerage account, we're talking no longer than 10 minutes to set it up and then 10 minutes per every other account or whatever.

25:10Andrew Sather:Maybe 10 minutes is too much more, like five minutes. So I would say there was probably a process of just a couple weeks once I realized it was an option and now I just had money moving where I needed it to move without putting too much thought into it.

25:25Evan Raidt:So here's something that I've discovered and maybe I'm about to approach the limits of it. So we'll see. But I believe you can have as many brokerage accounts as you want. Unless the FBI is going to come for me in a few months. I have lots of brokerage accounts. And so one of the things I actually do, because we mentioned the shopping kind of close autopilot, if you will, like that I'm putting from one place to another. Another one I do is car maintenance. so I like to drive cars as long as I can and that's more expensive over time you get these huge lump expenses rather than having a new car and it's all spread out and I've done this for a while I will have money automatically transferred from my checking to a brokerage account and that brokerage account is just the car expenses or the car maintenance And so I like to a little bit gamble that too, sometimes throw it in the stocks and it's like, all right, cool, this stock paid for the new tires I needed or something.

26:34But if you think about, sure, maybe that's not optimal

26:37Evan Raidt:because I shouldn't have put that money in the stock market anyway. But to me, the alternative is I never saved for these maintenance expenses and then I'm left with a huge bill that you probably put on a credit card or you probably use an emergency fund for. but because I don't want to think about it, it's just auto-transferred into a separate account, and every once in a while I might go in and buy some stocks with it or just leave it in cash. And that's been kind of a cool thing in my mind where I don't know. I'm just not like the buckets guy. I don't like having one account and having just different buckets you have to allocate.

27:13Evan Raidt:I like having separate accounts because that helps me not have to think about it. And so that might be an option.

27:22Andrew Sather:Yeah, I think that's a great option. Again, it may not, me personally, I would definitely struggle to not make bad decisions with that account and end up with less money than I started with. But you're definitely much more knowledgeable on stock picking than I am, so that's definitely a pro for you. But those kinds of things that work for different people are beautiful. And me personally, I use SoFi for my savings. And in SoFi, and I'm sure other accounts as well, this is just an example, you can have what they call vaults. and it's basically sectioning off, cordoning off parts of your account.

27:54Andrew Sather:You can name it as you want. And then for you to transfer money out of that vault, it's a more intentional act because you have to go in and choose, hey, I want to take money out of this vault and put it in general savings and then you could withdraw it. And so it's not as easy to just pull from whenever you want. And so something like vaults is something that I've used over time for different savings that we're going up for, whether it was the home purchase or whether it was a car purchase or a car upgrade that I wanted to make, all these sorts of things. I had money set aside in vaults that I could visually see, okay, there's the fund for the house.

28:28Andrew Sather:And if I want to save up for something else, for me to pull out of that vault would be difficult mentally, sort of. And so there's enough friction for me to not go do that than if it was elsewhere. And I'm not aware of a limit of brokerage accounts either. Don't quote us on that. And I think the lack of assuredness in our voices is making you Google it anyways. but assuming there's not then yeah feel free to go sign up for different brokerage accounts and keep different amounts of money in different places like you said you can automate money going to all those different brokerage accounts and it would take you very little time at all and you could have money in as many different buckets as you want and like you deciding to invest in the stock market especially if it's going to be for any period of time you're saving up for it now it can grow in there as well and you can have money growing in different ways towards different purchases, different lengths of time, whatever.

29:21Andrew Sather:You get a lot of customization. But definitely the last thing I would recommend is keeping it all in your checking account and kind of trying to visualize how much is going to be pulled out at any given time or even worst case scenario, you deciding, okay, I'm supposed to be saving to the Roth IRA. I need to go toss X amount in the Roth IRA from my checking. I know for me personally, it's never going to work. I'm going to think, well, you know, I could have gotten new rims on the car with that instead. How about I just go do that, and then I'll do the Roth IRA next month? But if the money's already gone in the Roth IRA, I'm not going to go pull it out of the Roth IRA to go do something like that.

29:56Andrew Sather:That's just too much friction for me.

29:59Evan Raidt:So this is probably, we don't have time for this, it's probably a topic for another day, but I'm curious how you even get to those numbers. How do I know how much to put in a Roth IRA, or how do I know how much to put as savings, or how much to put as fund? Those are kind of tough decisions to make too, right? Because without that, you can't do everything we're talking about today.

30:24Andrew Sather:Yeah, that's a very good point. That's definitely something that we could cover in an entire episode. And I could definitely go through details of how decisions of how I've made or how I've reached my decisions for those kinds of choices. And same for you. But those sorts of decisions are definitely tough because they're very personal. I definitely think there's some general ground rules. I think if your employer offers you a 401k match, putting in at least just enough money to reach that match or max out that match is essential because that's an immediate 100 % return. But then me personally, I don't decide to add any more to my 401k over that.

31:02Andrew Sather:And so that's kind of the cutoff limit for my 401k. So my employer, thankfully, it's fairly high, matches 6 % of my 401k or up to 6 % of my income. And so I put in 6 % towards the 401k, and I don't put in any more than that. So I can start sectioning off the rest. But you kind of just got to go piece by piece, I would say. And it definitely all stems from the foundation of, okay, how much do I need to survive? So how much do I need to pay rent and pay the average food every month and whatever, gas, charging a car, whatever. Set all those needs at the bottom of the pile. and then you can work with what you have left over above that.

31:47Andrew Sather:And that's kind of the direction I would recommend working to build up a budget like that and build up where you can save to different places.

31:54Evan Raidt:Yeah, I love that. That's a great starting point. So we've mentioned it needs to fit into your budget. I think hopefully that's clear by now.

32:02Andrew Sather:I'm pretty sure we've covered that.

32:05Evan Raidt:What other things fit into making smart purchasing decisions and empowering yourself to continue to stay in budget.

32:15Andrew Sather:The next step I would say that I think people fall into a lot, and I definitely think people are going to be falling into more and more over time based on trends that I see, is just avoid increasing these purchases over time. And what I mean by that is either something like lifestyle inflation, sort of locking yourself into a purchase, or saying, well, hey, I'm earning a little bit more money this year so I can increase this a little bit more and just kind of getting in that cycle. But also what I'm probably even more concerned about is thinking you can afford things just because they give you a monthly payment number or interest-free for six months or anything along those lines.

32:55Andrew Sather:So like, for example, I know I mentioned this in a previous episode, but if you walk into Ashley Furniture right now, every single, or it could be RoomSick, I'm pretty sure it was Ashley though, so sorry to either company for mixing them up. But if you walk into Ashley Furniture right now and you see a table that's like, we'll just make up another$500 table, it might say, hey, this table's$3. But it's because it's$3 a month for 36 months or something, interest-free for the first 12 months, whatever. And those kinds of things scare the crap out of me because it would be so easy for somebody who doesn't have a ton of money lying around that can't afford to buy that table otherwise to think, oh, maybe I could actually afford this table.

33:34Andrew Sather:Like, yeah, I'd pay a little bit of interest on it, but it is what it is. and okay you know factually yeah you would just pay a little bit interest on it a 500 table might without without doing the exact math might turn into like a 550 or 600 table so nothing too too crazy but imagine if every single purchase you made was was adding up in that way just a percentage or two here or there on everything is going to wildly throw everything out of whack and you're going to be spending a lot more money on a lot of things. I also remember the number of times now that I've gone to purchase something on Amazon and at checkout, it'll say, you know, you have another option where you could just pay us instead of this 160 bucks up front, you could pay us 24 bucks a month.

34:19Andrew Sather:And that$24 looks pretty dang appealing to be much more affordable and still get the same product. But I know that I would be paying interest on that. And also I know that it would be harder to plan for in the future. And what I mean by that is I know I could afford that 160 right now. That's why I got to this purchase point in the first place. However, if I now lock up said amount of money for the next few months or whatever, now I'm having to go and include each of those payments in my budget for the next few months or something. I think that's going down a very slippery slope that's not worth doing.

34:56Andrew Sather:If you get something like a mortgage, yes, you can plan for a very long time, you're going to have X amount in your payments. And overall, it's much more predictable and you can see where it's going to be going and you can plan for it in the long term. And now imagine if you were doing that with every single thing you bought. If you went to buy a cup of coffee, well, now you plan for that for the next few months. And then you went to buy a new laptop and that was for every time for the next few months. And then you bought, I don't know, a new mouse and that's every time for the next few months.

35:21Andrew Sather:Things would become impossible to plan for and the more difficult things are to plan for the less likely you are to to end up right side up essentially in the end even if the numbers aren't that high even if the numbers seem affordable locking yourself into any purchase that's going to be increasing or accruing interest over time and the same goes for for putting things on credit cards that you can't pay off you might think well i could afford it you know next month once i just save up my payments or my income this month i'll be able to pay this off next month. But then if you make one more little purchase along the way that knocks you over a little bit, now you're carrying a balance of 50 bucks or something, now you're paying interest on that 50 bucks.

36:00Andrew Sather:And these sorts of things just stack up over time and you just start bleeding money. And kind of to frame it in a different way, that's what the companies want. The credit card companies or Ashley Furniture, maybe they use a third-party finance or whatever. Whoever is lending you the money wants you to slip up and owe them a bunch of interest that you didn't necessarily have to owe them. And so anywhere that you can avoid paying interest on any purchase that you don't need to is money saved and money well saved. I've been thinking a lot about heart health lately, not because something felt wrong, but because I got my results back and saw markers I'd never even heard of that were out of range.

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38:07Evan Raidt:minute. Okay.

38:08Andrew Sather:Yeah, that's good. That's close enough.

38:09Evan Raidt:Car selling without a catch. Sell your car today on Carvana. Pickup fees may apply. It's actually disgusting how common this is becoming. It's predatory lending is really what it is. And like you're saying, it's a bunch of interests that people shouldn't be paying for. And then to your point, how fun is it to have a shrinking fun budget like oh i had 300 bucks this month now i have 200 now i have 100 like oh yeah that sounds that sounds amazing and then what about the the shame every time you open your laptop and you remember oh i'm still paying for this that's a much different place than being like oh i have

38:49Andrew Sather:my laptop and it's paid for yeah that definitely feeds in to the anxiety of things i know that that if i were to look around and i mean frankly if i look at my wall right now i know i'm paying off that wall because it's part of the house. But anything aside from that, and again, that's something much more concrete that I can plan for, and I know it's something that, spoiler alert, I couldn't have just bought in cash. I didn't have that cash lying around to buy the house straight up. And so that is something that had to be purchased that way. But again, if I look at my laptop that we're talking through right now, I know that I could afford that straight up, even if it takes me an extra month to save up.

39:27Andrew Sather:Maybe I set up a vault in SoFi, set up a separate brokerage account real quick, because again, these things don't take very long. Or maybe I made a previous purchase, reused a brokerage account, whatever. I have that money set aside to purchase that laptop, and once I buy it, that's the end of the road. That's my laptop. That purchase is done. Brokerage account is empty, whatever. That's a great place to be and much, much less anxiety-inducing than trying to plan for everything over time. I don't think that's a good place to be. But my next point, feeding into a budget, is you need to be guaranteeing that you can still afford your needs afterwards.

40:07Again, this kind of feeds into where I used to be versus where I am now.

40:11Andrew Sather:So where I used to be feeling like I just had a dark, empty bucket that I reach into and hope that what I'm pulling out isn't going to screw me over. That is definitely anxiety-inducing. and you need to be very comfortable that when you make this purchase, when you buy that laptop or whatever, you can still meet your needs afterwards. Because if you can't meet your needs, then you are going to be forced to fall into something that's paying interest. Maybe you're paying a late fee on something. Maybe you have to pay off a need using a credit card that you couldn't really afford to pay off in the first place, and so now you've got interest left over.

40:45Andrew Sather:You're just going to start stacking purchases that you can't afford if you start eating into the bucket that's left over for your needs. So have a spreadsheet handy. Have it written down in the notes on your phone, whatever. Have something in writing showing how much you need to afford your needs and how much you're trying to spend on this thing and make sure that your spending is not going to be eating into your needs.

41:09Evan Raidt:Yeah, I mean, how can that sustain itself?

41:12Andrew Sather:Yeah, that's going to be a one-and-done slowly situation. and the last thing i want to say here is is don't rely on willpower um this even kind of resonates with something you said earlier but in the opposite in the way that um you mentioned before making a purchase and then saying okay you know you won't spend as much for a little while but you have it tracked to see okay i made this purchase and i know how much it was and i know how that affects me and i can plan for it but there are definitely many many people out there and many of us in the past, I'm sure as well, that don't have a great grasp on our budget, don't have a great grasp on where all of our money is and where it's going, and still purchase something that we know we can't afford at the moment, but we could afford if we just almost save in the future, if that makes sense.

42:04Andrew Sather:If we just hold off spending in the future, then we could kind of backfill that money, and then everything would end up okay. And again, if you have a very clear plan for where that's all going, then that's completely fine. but a lot of people do that all the time it it reminds me of also people spending a ton on subscriptions people say well you know netflix is only 10 bucks hulu's only 10 bucks spotify is only 10 bucks but all of these things add up and suddenly you're spending 150 bucks a month on streaming services we we sort of in our heads have a tough time tracking all of these one-off decisions and so we feel like we're making a one-off decision when in reality this is the sixth time this week that we've made a one-off decision and we've said at 10 bucks i can afford that 10 bucks i can afford that over and over again and and this definitely reminds me of it you know i've i've known people before that okay i want to get new exhaust from my car or something i just i can't afford it quite yet but if i didn't spend as much for the next couple weeks then i'd be good they buy the exhaust, three days later they think, well, you know, I wanted those new clothes and I couldn't entirely afford it.

43:09Andrew Sather:But if I just hold off purchasing for a little bit, because you just get short-term memory loss of what you did recently and all of these purchases just keep adding up. Is that something you've ever struggled before? Maybe before you kept that note tracking your purchases?

43:24Evan Raidt:I remember always overspending for the holidays or overspending for things that in hindsight, like, oh yeah, I should have thought about that. People's birthdays and things like that. It took a couple years of doing this, but I would now, in my budget now, I have annual expenses in addition to monthly expenses. I think your budget might have this as well, but it's something I had to just learn from trial and error. I really screwed up November and December this year, so I would put, okay, maybe next year I need to spend, allocate 300 bucks for Christmas gifts or whatever the number is. And so that next year I could have that already in my budget and planned.

44:11Evan Raidt:So I guess that's a little side note. But to your point, yes, 100%. When I'm talking about going over my monthly allocation, I'm not talking about blowing the next month or two months. I'm talking about maybe I went over 100 bucks or something. But yeah, that mentality needs to be, you have to address that mentality out of the gate. Otherwise, everything else is not going to work out. You have to learn how to draw a line in the sand somewhere that says, I'm going to just have to be patient and put this off. Because in either situation you're talking about, you're either quote-unquote holding off your spending after the fact, or you could just hold off your spending until you get to that savings number.

44:53But the reality is there's not much downside in waiting

44:57Evan Raidt:until you have it saved and then making that purchase. Whereas the downside of continuing to have this mentality that, oh, I'll just pay for it in the future, that is a slippery slope. And like you said, I think the examples of Netflix, Spotify, Hulu, that's a great example of that. It might not be the exact purchase you're thinking of or talking about, but it's that accumulation and that habit that's really going to get you in trouble. And it's a reason why so many of us fall into this because we don't think about these things but from experience we're trying to tell you you can have a better life with your finances if you're a little more intentional yeah i definitely know that there was there were definitely multiple times i'm not sure exactly how

45:44Andrew Sather:many but multiple times and soon after i graduated college soon after i started started my first job out of college before i really had any kind of financial waking and started really carefully tracking anything and I was just reaching into that blind bucket that thankfully I had enough income that realistically I wasn't going to push myself into a point of not having enough money to afford my needs that gratefully that's that's not something that I would have fallen into but I did fall into the place of making these one-off decisions thinking okay that'll be my spending for this month that makes sense and then a week later thinking okay that'll be my spending for this month and whatever, doing that over and over again, that I did have multiple times where the money towards the end of the month that was left in my checking account was not going to be enough to afford the bills.

46:29Andrew Sather:And I have to pull from a savings account because I had some money going to a savings account. Again, it was just based on willpower when I chose to, no set amount of money, whatever. So it was in a savings account, but not for the best reasons or the best planning or anything like that. But I would have to pull money from the savings account just to afford the bills because I made those one-off spending decisions so many times that I was spending more than I was leaving in my checking account to actually be able to afford my needs after the fact. And again, I never fell into the place of having to put on credit cards or something like that.

46:59Andrew Sather:But I know that if I was earning less money or had a higher cost of living or something like that at that point in time, I 100 % had the mindset that would have put me in that place of being in some kind of debt just to be able to get by. At least one time it would have happened. I guarantee if it happens once, it's probably going to happen more times no matter how much it hurts.

47:21Evan Raidt:Yeah, willpower is such a hard thing. We need willpower for so many things in our life. And to have to exercise it with finances too makes life harder, frankly.

47:32Andrew Sather:Yeah, 100%. Anything you can do to take that mental load off of you, not just to take a mental load off and be less anxious about it or have to put less effort into it, but also to guarantee and assure your financial future in some way is a massive pivot that I think is kind of that big turning point for a lot of people. To turn off willpower, for the most part, ignore willpower, and just set up things ahead of time for yourself is a huge, huge pivot.

48:01Evan Raidt:That's so good.

48:02Andrew Sather:Beautiful. Awesome. Well, I really appreciate it, Andrew, as always. Freaking fantastic episode. Love it. if anybody has any comments or maybe how you go about purchases what kind of purchases you've made recently and how they fit in your budget and such feel free to comment below on whatever podcast platform you're on or email me at evan at einvestingforbeginners.com love to hear all of it and if you want to start getting a budget going to see how purchases fit in there and plan for it appropriately head over to einvestingforbeginners.com slash budget and we have a great beginner friendly spreadsheet on there that can grow with you as your finances grow or get more complex And as always, remember, financial freedom is built one smart move at a time.

48:40Andrew Sather:Keep it simple. Keep it steady. And at any rate, I'll see you next time. Peace. The information contained is for general information and educational purposes only. It is not intended for a substitute for legal, commercial, and or financial advice from a licensed professional. Review our full disclaimer at einvestingforbeginners.com.

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