Dec 212015
 

Maximizing Utility

Earning money is a learned skill. If we put in the time and effort, we can learn to increase our earning potential. But making money is only half the battle.

An equally important aspect of personal finance is spending money. 🙂 Some people may not realize it, but spending is a learned skill as well. This means we can learn to become better shoppers. Knowing where to look for deals, buying in bulk, and eating with the seasons will naturally help us save. But if we buy an expensive blazer on sale and only wear it once, then are we really saving money, or are we spending our earnings on something we don’t really want to keep? ?

This is why part of being a skilled spender is understanding how much utility we’ll get out of our purchase. Utility refers to the total satisfaction received from consuming a good or service. For example I normally wouldn’t pay for a donut. ? In fact, even if it was free I probably still donut want one. I’m just not a big fan of the hole thing. ? But I’ll gladly pay for a Hershey’s Cookies ‘n’ Creme. That’s my favourite chocolate bar!? So to maximize my utility I would pick a Hershey’s over a donut given those two choices, even though the Hershey’s is likely more expensive. In other words, the value of my purchase comes from how much enjoyment it gives me, – not from what I paid for it. 😉

Consumers who understand this correlation between their spending and utility are smart. 🙂 They tend to be excellent spenders since they don’t waste their hard-earned income on rubbish that doesn’t give them much fulfillment. Economists even have a unit of measuring enjoyment or utility, called Utils. 😀 At the end of the day it’s not about maximizing savings, but it’s rather about maximizing happiness. 🙂 Instead of looking for deals on pricing, we should be looking for bargains on satisfaction. 😀

My $1,500 Gift

I noticed I had some money sitting around. So after considering what brings me enjoyment and satisfaction, I’ve decided this year for Christmas to buy myself some new stocks in my tax deferred account. 🙂 So last week I purchased 20 shares of media company Viacom Inc (VIAB,) and 10 shares of the well-known retailer, Wal-Mart (WMT.) The total cost came to about $1,500 USD, rounded to the nearest hundred. This will be my last investment of the year.
15-12-wal-mart-viab-viacom-buy
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Everyone and their cats ? have heard of Wal-Mart. It employs about 2.2 million people worldwide and is the largest private employer in the United States. Viacom is one of the largest broadcasting and cable company in the world by revenue. It holds really cool brands like MTV, Nickelodeon, and Paramount – which puts out high grossing movies like Mission Impossible, Transformers, and Star Trek. 🙂 Together Viacom and Wal-Mart makes about $500 billion every year in sales. To me becoming a shareholder of these giant corporations, which means I’m entitled to a slice of all their future profits, is a much better use of my money than buying some overpriced gadget like the $1,500 Google Glass.

Let’s all continue to increase our earnings in the new year and practice being mindful of what we buy. Becoming an expert in both making money and spending money to maximize marginal utility is the ultimate path to financial enlightenment. 😉

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Random Useless Fact

15-12-expect-lion-eat-you-fairness

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DivHut
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$1500 in those two companies is definitely a better use of your money than buying some trinket, especially Glass, that will no doubt lose value over time. Entitling yourself to some dividends is another story. Thanks for sharing your recent buys.

FerdiS
Guest

Nice buys! Thanks for sharing and keep up the good work… certainly, buying stocks is the best way to splurge!

Cheers
FerdiS, DivGro

BeSmartRich
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Good stuff! Definitely money well spent!

Olivia
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Olivia

Are you making any financial goals for 2016?

Josh
Guest

Will be interesting to see how Wal-Mart fares for the short-term and long-term. Like most brick & mortar they are having to rethink their business plan. I live in a small town so Wal-Mart is our go-to place, if you don’t want to drive an hour to visit Aldi or Target.

With all that said, I did buy some Christmas presents on the cheap through 3rd party vendors on Wal-Marts website & they mailed them to our house (similar to Amazon or eBay).

xyz from Financial Path
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how does it makes sense to pay over 2.7% in commissions for these purchases (9.99×2 x2 for the sale = 39.96 / 1462$=2.7%) I try to always buy at least in lots of 100 and make sure I don’t get hit buy the commission.