I recently got into a very interesting conversation the other day when I returned from my weekly Monday shopping trip to stock up on food for the rest of the week for work. I bought my usual item; Bananas, muesli bars, apples and other various foods/goods. Upon my return to work, I was questioned by one of my colleagues as to why I bought the cheapest brand of tissues. The answer for me is quite simple, I try to spend as little as possible on items that I deem are not greatly improved for every addition cent more that I spend.
I find a lot of food falls into this category but I also label tissues as an item that represents no more value to me whether I buy the 95c White Facial Tissues 224 pack (Home Brand) or the $3.87 three Ply Eucalyptus Extra Care Facial Tissues 140 pack.
Apparently, I’m in the minority here.
Almost everyone in the office agreed that they would spend the extra $2.92 to get the more expensive tissues even though they offered 37.5% less product than their Home Brand counterpart. It baffles me to even think about it, you’re paying more than FOUR TIMES the amount and you’re getting 37.5% less product… Now I do have to admit that the triple ply tissues are much better quality and smell lovely. But are they worth that extra 407% mark up?
Let’s look at this issue purely from a math point of view and on a much bigger scale.
I find that most people fall into the trap of paying extra for things that they don’t really need when the purchase is small. It’s easy to justify buying the more expensive tissues because it’s only around an extra $3 bucks rights? I mean what’s $3 dollars in the grand scheme of things?
WRONG ATTITUDE!
The correct way to judge two items is working out what is the difference in terms of percentage and not dollar amount. Let’s scale things up as an example.
Harry Hotrod needs to buy a new car and has narrowed down his search to two cars.
Car A is exactly what he’s after, it’s a bright red V8 Holden that already comes with a southern cross sticker on the back. But there’s only one problem. Car A costs $22,999 which is a little expensive for Harry.
Car B is good but not great, it’s a slightly older model that looks a bit tired. It costs $16,999 which is much more affordable for Harry. Lets for argument’s sake say that the two cars are completely the same except for looks and Car A has more comfortable cushions.
Harry is having a hard time choosing between the two cars because there is a humongous $6,000 dollar difference between the two cars. He likes car A better but doesn’t know if he wants to shell out the extra 6 grand for it. He decides to go with the finically smarter option and purchases car B even though it’s not as comfortable or cool.
As he is driving home, he swings by Coles to get some items which just so happens to include a box of tissues. He looks at the 95c White Facial Tissues 224 pack (Home Brand) and the $3.87 3 Ply Eucalyptus Extra Care Facial Tissues 140 pack. He decides to get the $3.87 3 Ply Eucalyptus pack as it looks much better and he doesn’t want to get a sore nose…
Let’s take a step back for one moment.
Harry only hours beforehand decided to purchase the cheaper car because he wanted to be financially responsible, yet he then buys the most expensive tissues on the shelf because it’s only an extra $3 bucks. While the difference between the two cars is significantly great in terms of dollar amounts, the percentages are a different story.
Car A is 135% more expensive than car B or if you want to look at it from a savings point of view, car B is 26% cheaper than car A. I cannot overstate this enough, a 26% savings rate is massive. HUGE. So I commend Harry for thinking with his head when picking between the two cars. Here is where it gets ridiculous. The cheaper tissues are 75% cheaper than the expensive ones… That’s not a typo. 75% cheaper AND you get 84 more tissues. I wonder if Harry would have even had to think twice if car B had been 75% cheaper than car A. At 75% less, that would make car B $5,749 dollars.
Now I can already hear what some of you are saying.
‘Yeah, so what. It’s still only saving around $3 dollars. Whoopie doo’.
If you apply this way of thinking to every little purchase you do it will add up very quickly. Lets, for example, say that you spend $100 dollars a week on groceries buying the cheapest of every item possible. If you apply the ‘It’s only 3$’ mentality and add the 407% markup on your $100 groceries, it turns into $407 dollars.
That’s a 307$ dollar difference. It gets worse.
With everything you buy or save you should be thinking in 10-year blocks. If you’re saving $307 dollars a week that means you have saved $15,964 a year or $159,640 a decade. $159,640 dollars!
Jesus Christ that’s a lot.
I mean, would you still prefer the softer, nicer smelling tissues if someone said that instead of the nice tissues you could buy the cheaper ones and in 10 years you would be $159K richer?
Of course, this is an extreme example and you’re definitely not going to get a 75% savings rate just by buying Home Brand on all items. But it demonstrates that saving $3 dollars here and there can add up very quickly and over a 10-year span can turn into a substantial amount of money. When tossing up between two items try to work out the rough percentage difference and then spend accordingly. I sometimes splash out items that are 300% + percentage dearer than another alternative. But I limited these items to once offs or special occasions and most definitely not staple items.
If you apply this way of thinking to all your purchases and not just the expensive ones you will see a big increase in the amount of money you save each week. You can then put this extra cashola to work by investing it and inching one step closer to freedom.
I’m so glad I found your blog, it’s been a struggle finding other Aussies here!
I’m the same, I spend more on things I consider important but I always buy the 95c boxed tissues. Always. Haha! I didn’t even know other brands go for $3. It’s not that the home brand ones are poor quality, they do their job quite nicely. I guess if it’s toilet paper we’re talking about, then it’s different, but facial tissue?! Crazy.
Hi J,
Really glad you commented here too as I have always struggled to find Australian financial bloggers also which is half the reason I started this site. I LOVE reading other PF blogs but they are usually US based talking about their 401K’s, Traditional IRA vs Roth IRA, state tax’s, Mint etc. Awesome info but always left me like ‘Yeah that’s awesome, but nothing here is relevant in my country’. Glad to find another Aussie who shares my PF obsession :).
Lol yes toilet paper is a different ball game.
I feel like you’re on the right track with the idea of looking at the percentage saving, but I don’t think it’s the best way of looking at it. A percentage difference of 10000% is meaningless if you don’t buy much of a cheap product. For me, looking at yearly savings is much more meaningful and allows for better comparison.
For example, using your numbers for tissues, if you only need to buy 3 packs of tissues a year, you only save $9/year – even though you are still saving that 75% each time.
For general groceries, i.e. things that you go through much faster than tissues, it becomes more important to buy the cheaper items, as a 10% difference on a $100 is already more savings than 3 packs of tissues.
Also, I think it is still important to keep the dollar amount in mind, even if the percentage difference isn’t big. Imagine buying a $1mil house, and thinking “Oh, 1% isn’t that big of a difference” – well, in this case, it’s $10,000! I think anyone would have a difficult time spending that much on tissues in their whole life! 😛
So I think your message, in essence, is along the lines of “$3 difference between products might not seem like much, but if you buy it a lot, it adds up!” – correct me if I’m wrong here – and I totally agree with that 🙂
Hi Phil,
Thanks for you insightful comment :).
I tend to always look at percentages when buying as opposed to dollar savings no matter how big, small or frequent the purchase is. You saying 100000% difference is meaningless if you don’t buy much of a cheap product. I disagree.
The tissue example is an extreme saving percentage that I just happen to come across in conversation. Like I said, your not going to get 75% savings on everything but you should try to get as much as possible on every purchase not matter how big or small. Your example of saving 10% on groceries complements this methodology and is inline with what I’m saying. It doesn’t matter that 10% saved on groceries for one shop is saving you more than the tissues for the whole year, this is simply kicking more ass in your quest to lower your overall expense percentage during the frustrating task of parting way with your hard earned dollars.
Don’t think that one expense is more important than another, they are all the same just dressed up differently. At the end of your life you are going to have a very big dollar amount labelled ‘EXPENSES’. This will be everything you spent money on in your lifetime. Everything falls into this category so don’t discriminant when trying to lower costs for this beast.
You are correct about the essence of the article 🙂 . Even though you might only be saving little amounts here and there it all adds up and you should look at the percentage difference especially when buying cheaper items as the dollar difference might be deceiving.
I guarantee you if we were to track expenses for a year and bought the exact same items and quantities but different brands, I would spend less than you with a lower percentage rate than you would by comparing savings not matter how much you saved. It would be irrelevant if you saved $100,000 dollars, because if I had a better percentage rate that means no matter how much of a bargain you got, I got it cheaper! You cannot argue with maths and numbers!
On your example with the million dollar house, $10,000 dollars is a lot of money. But you shouldn’t try to compare it with the savings of the tissues. All expenses at the end of the day are adding to the giant snowball. While some snow that gets attached to the ball might be bigger than others, you want to keep the snowball as small as possible! So try to dodge those snow filled moguls no matter how small they are!
Years late, but screw it! I’m always baffled when people quite happily shell out $5 a couple of times a day to drink fancy coffee. I shell out about 10c each time, about a 5000% saving. Standing alongside the other guy in the urinal two hours later only pissing away 10c feels a lot better than pissing away $5. The instant coffee I drink is better than the fancy stuff anyway, so it’s a massive no-brainer for me!
PREACH!
Yeah it’s an interesting one. The difference between the two in your example is only $4.90 which may seem not so significant. But if you add up all those little purchase throughout a lifetime. It can often be more expensive than the difference on a big ticket item like a house or car.
Who else is starting the blog from the very beginning?
This is a really useful way to think about money!
I’ve starting the blog today 🙂 so happy to find an Aussie based blog and far so good.
I just started binging on it today 🙂
Starting reading today too, found this place from r/fiaustralia.
Just started today too! I was googling ETF’s, didn’t know there was a r/fiaustralua, thanks!
Also started the podcast today too!
No worries 😎
Been reading various Aussie Firebug articles and dipping in to the podcast for ages. Time to finally give it the end-to-end treatment I’ve done for Mr Money Mustache, Strong Money Australia and Lifelong Shuffle. Can’t wait!
Godspeed!
I’m starting today! Finally finished MMM’s back catalogue so it’s time for some local content and in particular to learn more about investing…
Hi. I am quite new to the FI world but I am loving it! I have binged on Mr Money Moustache and listen every day to the Choose FI podcast which are both great but US centric. About to start working my way back through your blogs from the start. Looking forward to reading all your tips for my new-found FI lifestyle.
Welcome Kylie! I hope you enjoy my blog 🙂
Very good article with an original idea as far as I am concerned.
Thanks 😊
Soft! I use 20 cent toilet roles. Or I just sneeze on the work colleagues i dont like. Loving your blogs. Will read all 70 tonight and leave annoying comments everywhere 🙂
Lol. Looking forward to reading them James 😊
Mate I love the simplicity of this article. It is the sheer pinnacle of tight-arsery and I am proud *wipes away tear*, especially the inner-engineer in me which is always trying to optimise things. Look after the cents and the dollars look after themselves!
Cheers Cap
We normally buy the 95 cent tissues too. Except when someone has a cold. Then we buy the $3 ones. Because you do get a really sore nose from the cheap ones when you’re going through a box a day, and a sore nose when you’re already sick is no fun at all! In that case the extra $$ is prevention and therefore a worthwhile use of our money.
I will try the % approach for a while and see how it feels. Thanks for the idea!
TBH, my thoughts on the per cent rule has changed throughout the years. I still think in terms of percentages but I’m way more relaxed on the little expenses these days. And you’ll probably find a decent ply of tissues floating around our flat at any given time 👃🧻
love this!! I am definitely guilty of this mental shortcut around justify on dollars not %! am just starting on your historical blogs, have a packet of chips ready for a big binge haha – your net worth updates I’ve been reading up on has inspired me to start writing about my own FIRE journey! I started late but better than never hey! Also, a lot of the stuff that’s out there is very US-centric so keen to gather more local material – am also writing from a woman + person of colour perspective so putting that into the mix. When COVID-19 vaccines are all around, would love to meet up for a coffee to talk all things FIRE!
This is my little blog – I linked to yours on it 🙂
https://minimalistmemo.wordpress.com/
“already comes with a southern cross sticker on the back”
🤣🤣🤣
Ahh the post that kick started it all! Still one of my favourites, and something I always think about for every purchase. Strong FIRE game!
Wow. That was a blast from the past haha.