Posts made by Mike_imm_Ubund

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Throughout my time working at a New York based Private Equity firm, the angriest my boss (one of the Managing Partners at the firm) ever got at me had nothing to do with my job performance. Instead, he was disappointed with the steep rent price I was paying for my NYC studio. I explained to him it was the cheapest option within walking distance of the office. He immediately questioned me, “Did you negotiate the price?” I shook my head no. He responded with three words that have forever changed my perception, “Everything is negotiable”, then walked away.

I know he did not invent this quote, I had heard it before. However, I always attached “Everything is negotiable” to a used car salesman or Antique Roadshow, thinking it was just a corny sales line more than anything else. It was not until my Managing Partner, someone who I deeply respect, recited this quote to me that I took it heart, and began to really analyze why “Everything is negotiable”.

Why is “Everything is negotiable”
The main reason “everything is negotiable” is because marketplaces are inherently inefficient. In a marketplace where a product is priced to maximize profits, a company forgoes potential profits on customers who are only willing to buy the product for a cheaper price. For example, picture the following conditions for a T-shirt company:

Cost of T-Shirt Production: $9.00
Number of Customers if T-Shirt Price is $20.00= 20 customers
Number of Customers if T-Shirt price is $10.00= 30 customers.

In this scenario, the T-shirt company company will make a larger profit listing its T-shirts for $20.00 ($220.00 profit), than $10.00 ($30.00 profit), and thus list the shirt for $20.00.

However, if the T-shirt company could price discriminate (charge different prices to different people based on their demand for the product), they would sell their T-shirts for $20.00 to the 20 customers ($11.00 profit per customer), then sell 10 shirts for $10.00 to the customers who are only willing to pay $10.00 for the shirt ($1.00 profit per customer). When price discriminating, as long as the company is making a profit (total revenue> total cost), it always makes sense to sell a t-shirt at the price.

Use Negotiation to Allow Price Discrimination:
Two examples of price discrimination are age-based discounts (Senior Citizen or Children discounts) and time of week price cuts (gas stations will cut prices on specific week days, where only price sensitive customers will realize the discount). However, as you can likely tell, the problem with price discrimination is it’s almost impossible to market. Both these examples capture some price discrimination, but do not come close to fully realizing potential discrimination. Thus, most companies will not price discriminate their products, and will find a single price that optimizes their profits.
The moral of the story is that companies want to price discriminate, but they are unable to. However, through effective negotiation, we (the customer) are able to expose the minimum price a company will be able to sell a product at. While in reality it is likely impossible to try to negotiate “everything” (I do not think you are going to be able to negotiate the price of a bag of Cheetos at a Walmart), there are many products you can negotiate which you may not have known are possible.

A few examples:
Hotel/ AirBnB prices: If a hotel is in off-season, or simply has excess rooms, they will likely be able to give you a discount. This is especially apparent during COVID, where the hospitality industry has been struggling. At the very least, you may be able to get some added benefit or a better room for the same price.

Media Subscriptions: Subscription based media companies (Netflix, Xfinity etc.) often charge a monthly postpay. However, they would prefer their users to prepay an annual subscription, as it guarantees customer retention and increases their cash flow immediately (to reinvest into the company). Thus, media providers will often provide a significant discount if you are willing to commit to an annual prepayment. The best part: you do NOT even have to negotiate. Third party platforms like Ubund will negotiate a 30%+ discount to your media subscription for you if you commit to a 1 or 2 year prepayment.

Furniture: Furniture showroom price is often much higher than its manufactured price. It is always worth attempting to negotiate on furniture before you purchase.

Gym Memberships
Electronics
Medical Bills

Tip for Negotiation: Increase Your Bargaining Power
Before you negotiate, always do your research to figure out how you can incentivize the seller to sell to you for less. Bullet 2 above is a great example of using research to increase bargaining power. These third party negotiation platforms understand that media companies prefer being paid upfront for a longer commitment, so they leverage the preference for an added discount for their customers. You can apply a similar negotiation tactic to anything you want a discount on. If you want a discount on a long-term stay on an Airbnb, explain to the Airbnb owner the benefits of your long term commitment (increased customer retention), then tell the owner you will only stay for an additional discount. Even if you do not have a bargaining angle, use the power of time. Tell the furniture salesperson that a couch you want is slightly over budget, but you are willing to purchase it immediately if provided a reasonable discount. Even if a negotiation attempt does not work, you will see over time that “negotiating everything” will consistently save you money.

Comment below where you like to negotiate or any other negotiation tips you may have!

As the holiday season comes closer, that need for cash is greater than ever. Whether it’s getting the right gift for a loved one, or preparing for your COVID conscious gathering, money can feel especially tight, and making sure you budget correctly is more important than ever.

When we try to think of ways we can save, most of us go through the same list of ways we can cut spending on non-essentials. For example, going out to eat less, drinking less or cheaper alcohol, turning off the heat and lowering utilities are all ways people change their lifestyle to save money. While cutting out non-essentials is a great habit to practice, I believe there is a better way to save money (without changing your lifestyle) that is often overlooked.

Saving on software. When people think to save, they rarely think of saving through software, and when they do, they think of cancelling their subscriptions. However, one can easily save on almost all software companies by using their bargaining power and prepaying. Today, almost all consumer oriented software companies (SaaS) will provide a monthly subscription option. While this option provides little commitment to the user, over time a monthly subscription will be more expensive than paying annually. This is because for software companies, cash now is always better than future cash (they can reinvest in the business and it guarantees customer retention). Therefore, unless you plan on only using a software for only a few months, it makes sense to prepay annually for your subscription.

How can you prepay annually? First, many software companies understand the power of annual prepayment, and will offer a flex option of the ability to subscribe monthly for one price or annually for a significant discount. However, what if the company only provides a monthly subscription (etc. Netflix, Xfinity)? There are third party platforms which will leverage annual prepayment for you. Simply pay through the third party platform, and they will immediately provide you with a 30%+ discount for your prepayment. These third party platforms make money by acting as an added marketing source for softwares, so they do not cost you more than going through the software company themself.

Saving money has never been easy and never will be easy. Almost always one has to change their lifestyle negatively in order to stay. However, prepaying for software is one of the few ways one can save without changing their lifestyle at all! So go through those subscriptions, figure out how to annually prepay for them, and get a loved one something nice with the extra cash you have.

Let’s talk about one of our largest expenses as a human, food. The average American spends $7.56 per day on food. Assuming my audience is composed of average Americans (if not average, then I assume even more frugal), my question is as follows: how the heck are you guys only spending $7.56 per day on food?
I am a pretty broke college student aiming to spend as little excess money as possible. Whenever I go to the grocery store, I have one goal in mind, the most protein per dollar. I shop at Walmart rather than Whole Foods and I always buy the store brand rather than the name brand. My shopping list consists of the following: chicken breasts, ground turkey, pasta, hot dogs (89 cents for 8), eggs, milk, ham, canned vegetables, peanut butter, beans, and canned tuna. While I definitely eat more than the average human, I only eat two full meals a day (lunch and dinner), almost never go out to eat, and still find myself spending over $7.56 a day on food.
Assuming that the average human consumes a more diverse and organic diet than me, why am I still spending so much on food? Is it that I consume more than the average person, that I am based out of Honolulu, or am I missing some secret shopping advice that everyone else knows.

Please provide any food shopping advice that you may have below. Thanks!

@my4mainecoons I appreciate the response…and I am just looking for insight. I agree that at a young age a Roth IRA is preferable to a traditional IRA in most settings (lower tax bracket: makes sense to be taxed upfront). I am thinking of a scenario where you are a college/ just post college student with likely a small income and a large sum of student loans or other fees to pay off. As a diligent budgeter, you forecast your expenses and want to allocate a portion of your remaining savings to both investing and an emergency fund. In this scenario, would it make more sense to passively invest in the market traditionally rather than invest through a Roth IRA? That way if you need liquidity, you are only taxed on your earnings, rather than a Roth pretax and an early withdrawal fee on earnings?

I know it seems specific, but this a scenario popular to college students with low incomes. Even if you did have a separate emergency fund and Roth account, your contributions to Roth may be so small that they would be insignificant (relative to your net worth at retirement), and it may be worth using the cash as disposable income now.

Also, no… my parents did not give me the “Personal Finance Talk”. I do not think it is as popular as the other “talk” parents have with their children

Let’s talk Roth IRAs. Every personal finance influencer in the world talks about how awesome Roth IRAs are, but are they really that great? I understand that earnings in a Roth IRA are not taxed if they are withdrew after age 59. But should I really be saving money for when I am 60 years old? In a sense, I feel like I would rather spend that money while I am young and can be more adventurous.

I am not completely out on Roth IRAs, I just think they are over-hyped.

What do you think? I would love to be convinced otherwise.

Something I have always struggled with is budgeting. While after every paycheck I track how much money I spend on each expense (and think by doing so that I am budgeting and saving), I always feel myself short on cash and spending less at the end of each pay period. This habit I have created is because I am not budgeting, but I am expense tracking.

Expense tracking is the act of noting every expense one incurs over a period of time and evaluating it based on your total savings. While expense tracking is a great way to determine how much of your savings have been allocated to certain expenses, it gives no projection of how to allocate your budget for future expenses. Through expense tracking, one is unable to properly weigh how they want to allocate their cash and savings over a period of time.

Expense tracking leads to short term lifestyle inflation, or the tendency to increase spending when one’s income increases. A personal example of lifestyle inflation is my relationship with food. Whenever I receive a paycheck (and my bank account seems bigger), my drive to cook seemingly decreases, and I begin to order take out significantly more than usual. A week and a half later, I will track my expenses, feel worse about my savings, and you will find me eating 89 cent canned chicken for 2 meals a day. While this tactic of expense tracking and momentary lifestyle inflation is one way of living life, most of us can agree that it is not our ideal lifestyle.

The key to living a consistent and well-balanced lifestyle is to budget. Successfully budgeting is to list out all of your future expenses at the beginning of each year, month, and even week. By budgeting, you can get a clearer picture of how much of your savings you are willing to allocate towards a variety of expenses (or investing). Instead of ordering take out 5 times in a row, and then eating cheaply and unhealthily for 2 weeks, budgeting allows me to spread out my take out days, and allows me to manage how I want to allocate spending on take-out and home cooked meals versus all other expenses. While budgeting may prevent you from experiencing the short-term euphoria of lifestyle inflation, in the long-term, budgeting will breed a more financially stable and ultimately happier lifestyle.

While budgeting is a necessity, it is not easy. Knowing just how much to spend in each expense category is extremely difficult and takes time to master. However, it is possible. Here are some tips I have to increase your spend predictability and to budget effectively.

Use a budgeting app: There are many budgeting apps which can help you list out your expenses and provide tips as to how to allocate your savings most efficiently.

Subscribe: Using monthly-subscription based services is a great way to predict your expenses. Whether it is a subscription meal box or a streaming app, subscriptions in any expense category give a clear picture of how much of your savings need to be allocated towards a particular expense. (To save money on subscriptions, I recommend you subscribe annually to all your subscriptions, or use a third party platform which will offer you an added discount for committing to prepaying a subscription annually).

Invest to Save: When budgeting, people often believe savings entails leaving a particular portion of their budget in a savings account (and earning 1-2% interest annually). By investing safely in index funds, mutual funds, or ETFs (which all require very little investing knowledge to use), anyone can easily earn 10%+ on their savings a year. Through investing, your budget will slowly begin to look bigger and bigger.

I would love to hear any tips you have on budgeting! Lets start a thread here where we can ask questions and provide insight on real ways to budget.