Best Ways to Bargain

Jake asks Dave for some tips on bargaining. Dave tells Jake what he does.

QUESTION: Jake on Twitter asks Dave for some tips on bargaining. Dave tells Jake what he does.

ANSWER: The first thing you need to know is places like Best Buy, H.H. Gregg—those kinds of places—do not have huge margins. Lowe’s, Home Depot… You’re going in there to get a washer and dryer. You’re going in there to get a microwave. You’re going in there to get a refrigerator, a television. The margins are not 50%. It’s not like you’re looking at a $1,000 item, and they paid $500 for it. They don’t have anywhere near that kind of room in those things.

The biggest place they make their money is when they can sell you those rip-off extended warranties and get you to finance something. Even if they can get you on the 0%, nothing down, no payments until tax time, 90-days-same-as-cash—that kind of crap—90% of that does not pay off during the 90 days, and you convert that to high interest rate payments at 24% or 36% interest. That’s where you get messed over, so stay away from the finance plans. Stay away from the extended warranties. If you can’t afford to fix the stupid thing and exist with the manufacturer’s warranty, don’t buy it. That’s where their margin is. That’s the big area. Best Buy will wear you out with that crap when you go in there. It’s like they’re extended warranty Nazis or something. It’s crazy. You’ve got to stay away from those things.

How do you get a bargain? Usually the best way to get a bargain on stuff is last year’s model or scratch-and-dent. There is margin in that stuff because at that point, that stuff’s almost throwaway. I bought a 60” plasma several years ago. At the time, that was a $4,000 television. It was a floor model, and they kept it on all the time because it was on the floor, and the screen got burnt. If you don’t know what that is, if you leave the same image on a plasma for days on end, it will leave that image burned into the screen. They had kept this on ESPN, so the ESPN logo was kind of burnt in the bottom right-hand corner. The only time you would see it if you were on another channel would be if something moved behind it that was the right color, and you really had to be looking to see that it was burnt, but it was a burned screen—no question about that. It was a floor model and all that stuff. It was a $4,000 TV, so we stood there and talked about it a little while at one of the electronics stores, and I was able to buy that for about $700 or $800. It’s a perfect plasma. I’ve still got it. Nothing wrong with it at all.

That’s how you get bargains. You don’t just buy top-shelf, first-drawer everything. But if you go in there and want to buy the brand-new thing that just got shipped in there and there’s nothing wrong with it and it’s in the box and perfect, they don’t have a lot of room. I would flash cash. I would go in there with $100 bills. I want a bargain. I would study the market. Don’t just buy from one store all the time. Find out what that washer and dryer or television is being sold for at several different places. Compare, compare, compare. Look for sales. If you have a store you prefer to deal with, just tell them there’s a sale over at So-and-So, and if they’ll match that sale, we’ll do something on that.

If you take a match-the-sale and last year’s model and a scratch-and-dent, you can really get your appliances for $.30 or $.50 on the dollar of brand new, top shelf, out of the box. If you want brand-new, cutting-edge-everything technology, there’s just not a lot of margin in that. You’re not going to get big bargains on that because they don’t mark it up versus, say, furniture. Furniture and jewelry are the highest retail mark-up items—at least double—in the typical case. You go in the normal furniture store, the normal mall jewelry store, the retail jewelry outlet, you’re talking double what they paid for it.

You’ve just kind of got to know a few of these things. Be willing to hunt and shop, compare. Coupons. Flyers. Sales. Then step back and be patient. Look for that scratch-and-dent item, that last year’s model. Maybe a color that wasn’t exactly what you wanted depending on the use you’re going to have for the thing. Then when you get really, really, really rich because you do this kind of thing for a long, long time, you’ll see this kind of thing as a game from that point forward. It’s like a game. It’s like going hunting or fishing. You’re trying to catch something. You’ll do it sometimes for the game, and then there are other times when you’ve got the money because you’ve lived like no one else and you see something you want that’s brand-new and cutting edge, and you just buy it because you can now.

That’s how most people stay broke though. They just go in and whatever the store says, they just buy it and put it on payments, buy the extended warranty, and then end up paying 24% interest because they didn’t pay it off in 90 days, and it’s back charged through the 90-day contract. They just buy it, and then they’ve got payments coming out their ears on their rototiller. They’ve got payments on their John Deere tractor—an $8,000 freaking lawn mower!—and you make $38,000 a year. What’s wrong with your brain? That’s what you’ve got to avoid. I’m not against a John Deere lawn mower. If you want one, get you one. The point is don’t let one get you.

You’re buying things while you’re building your wealth that allow you to continue to build wealth. If you’ll buy things like no one else, later you have the opportunity to buy things like no one else. I can tell you my wife Sharon Ramsey to this day—every shopping expedition is a bargain hunt. It’s like a game to her. She wants to come home and tell me how much money she saved, which means she spent money, but she does. You can’t stop once you start. It becomes a way of life.

It’s such a good question, Jake. That’s the kind of question rich people ask. Rich people buy not only bargains but they buy bargains on high-quality items that last. If you buy something that is cheap quality in order to save money, you’ll have to turn around and replace it soon anyway. Instead of buying a brand-new Dodge Neon, they’ll take that same amount of money and buy a high-quality used luxury car of some kind—maybe a Lexus or a BMW, maybe a Ford or a Chevy. I don’t know. Instead of buying the little gerbil in the wheel that’s going to get tired, they go ahead and buy that Thoroughbred that’s got a little gray around the muzzle. It’s value. High value. It’s a high-quality item, and they’re okay with it being used. They’re not buying it for what you think. They’re buying it for its utilitarian value. Even something like buying a watch. You won’t see them pick up $9 watches, because those are throwaway watches. They may not spend $30,000 on a watch, but they’re going to pick up a quality watch that they’ll wear for years.

I have three watches. One of them I have had for 10 years. I wear it almost every day. It works. I learned that kind of stuff from rich people. If you will figure out what rich people are doing and do rich people stuff, guess what? You get to be rich people. If you do poor people stuff with money, you’re always going to be poor people. If you’re rich people and you do poor people stuff with money, you’ll become poor people. If you’re poor people and you do rich people stuff with money long enough, you will become rich people. It’s habits, and it’s a way of thinking. It’s a mindset about your life and about money. Are you a consumer, or are you an investor? It changes everything.

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