Wednesday, October 27, 2010

The #1 Rule of Personal Finance

Whether you're buying a home, managing your income, or going to the grocery store, there is a simple rule imperative to every aspect of personal finance. Embraced, it is your greatest pecuniary tool. Ignored, it will destroy your cash flow and leave you living destitute with your Grandma.

From Wikicommons
You gotta do the math.

Okay, equations may not be your cup of coffee. But knowing the numbers is key to saving money, and performing simple computations can mean the difference between living well and scraping by. Frankly - and I realize this is simplifying the issue beyond measure - but I occasionally wonder how many U.S. foreclosures could have been avoided if someone sat down with a calculator. (Judgey? Me? Er … maybe.)

Math is especially essential in the supermarket, from estimating discounts to figuring unit prices. Occasionally, you even have to guess at measurements and conversion rates, which is always a good time.

Granted, this isn’t intuitive knowledge. But it is very, very necessary knowledge. So, how do you make trips to the market a little easier? These tips might help.

Create a pricebook.
Though it’s a little intensive at first, a good pricebook will help you nail the best deals on food. Once you have it down, you won’t even need to record numbers anymore. You’ll just know. Of course, they’re a bit complicated to explain in two lines, so I’ll refer you to this masterful post at Get Rich Slowly, which includes links to spreadsheets. This CHG comp of pricebooks, meal planners, and grocery lists is way useful, too.

Make a grocery list, pricing included, before you get to the store.
You’re less likely to make mistakes at home when you have time and relative peace to run the numbers of a given purchase. Derive costs from online circulars or your own hard-won knowledge, factor in coupons, and don’t forget any membership card discounts.

Bring a calculator with you as you shop.
This eliminates the need for in-your-head math, making nearly any in-store purchase much easier to figure. Can’t find a Texas Instrument? Use your cell phone. Almost all models should include a simple (read: non-scientific, but you won’t have to figure out cosines, anyway) math machine.

Keep a running tally in your head of what you buy.
Estimating your purchases as you shop goes a long way toward staying within a budget. It doesn’t have to be exact, because odds are the digits will work out at the end. Waiting on line is a perfect place to do this, especially if there aren't any good tabloids to read.

Learn this simple math trick.
Take an item’s price and move the decimal point to the left by one spot. The new number is 10% of the cost. You can use that to approximate nearly any discount. Multiply it by three to get a 30% discount, or five to calculate a half-off price.

Loaf of bread = $3.92
10% = $0.39
20% off = ~$0.78
Half off (50%) = ~ $1.95

Relatedly, to derive the individual cost of a Buy One Get One free item, simply split the price in half.

Compare unit pricing.
Supermarkets will frequently present you with two prices. The latter is the cost of a specific item. For example, the price of these egg substitutes is $3.49.

The former is what that item costs in a standardized size or quantity. A full quart of these egg substitutes will run you $7.98.

Using that former number, you can compare the cost of a quart of egg substitutes to quarts of competing products. Maybe another brand goes for $10.15 per quart, making it more expensive. Or perhaps it costs $6.98, a better price.

Beware, though. Sometimes, similar products will use different units of measurement to list their unit pricing. In that case, it’s handy to have that calculator.

Note the pound vs. quart measurements here.
Weigh your produce.
Okay. Like, “duh,” right? But hear me out: Weighing produce will not only give you an idea of cost, but a visual representation of just how much food you’re buying. Plus, it makes it easier to find a bargain when you’re confronted by pricing like this:

Which is the better deal, $1.99 per pound, or $1.99 per bunch? Only the scale knows for sure.

These rules are fairly basic, sure. But really, they’re here as a reminder that frugality is a numbers game. And in order to succeed, we hafta stay on top of them.

Readers, whaddaya think? Are there other math tips to be added? Do you think math is as important to financial health as I’m making it out to be? Will you now have an answer for your kids when they ask, “Why do I have to learn this?” The comment section, she is open.


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bashtree said...

Nice tips! When I'm trying to figure out the discount on something, the vast majority of times my end goal is figuring out how much I'll end up paying. And I don't like subtraction. What I do is this: if something is 20% off, I take the one-tenth price and multiply it by 8 instead of two, which gives me the price-with-discount instead of just the discount, which I'd then have to subtract from the original price. After my head injury, I've found it surprisingly difficult to subtract numbers in my head. Multiplying a bigger number is easier for me.

Anonymous said...

I TOTALLY believe in grocery shopping with a calculator! With a husband in school and a tight budget, it is essential for me. Great post :)

Countrymama said...

Thanks for the tips, I've got the menu and calculator down to a science but I hadn't thought about using the price book to get a rough total before I shop!

Rachel B. said...

Psst - Kris, 50% off a $3.92 is $1.95, not $1.45.

Kris said...

@RachelB: AUGH! In a math post, of all things. It's been fixed, and thank you for the heads up!

karen said...

The calculator idea is a good one. I hate shopping, was not feeling well at the time, was in a time crunch, the store was busy. I was comparing 2 things of the same item but different brands. One was on sale and one wasn't but I had a good coupon for that one. The sizes were different. I looked at the unit pricing tag and they were priced in different units. One was by ounces and the other wasn't. I am good at math but at this point my head was spinning. And aching. I didnt get either one.

Anonymous said...

Great post. It's all about the math.

Anonymous said...

I keep a running total on my shopping list as I put items into the cart. It's easier for me than adding in my head, especially when shopping with kids.

food4five said...

Love these tips - I have found that being a member of has helped me have a much better sense of what a really good deal is - with sales and coupons.

Claudia said...

This isn't a math tip, but the absolute best way to save money at the grocery store is to buy food as unprocessed as possible. For example, a loaf of bread can cost upwards of $2 in a store but cost less than 50 cents to bake from scratch (google "bread in five minutes" for directions for super easy and quick recipes).

Buy in bulk whenever possible. Instead of buying a can of beans, buy dried beans. It's cheaper and healthier (once I picked up a can of chickepeas only to discovered it contained disodium EDTA, yuck).

Avoid brandname products unless they're practically giving them away and only take advantage of the sale if the product isn't chockful of additives and preservatives.