Which would you prefer?
To be offered a discount seasonally or to create your own discount to be used anytime you prefer?
Apparently, there is a lack of data to decide for the preference above. Nonetheless, it could be an interesting conversation-starter.
Recently, I thought about how to think about discounts and investments.
Retailers put up sales signages to sell items at a discount in order to entice potential consumers to buy. “Ah, there’s a discount! I feel like I’ll miss out if I don’t buy now.”
#FOMO #senseofurgency #marketingtactics
Level #0: The Discount That Most Consumers Know
If something is sold to you, even if at a discount, you have not saved money off the discount. You have spent money, i.e. expense. Money out = money spent.
Money today is more powerful than money tomorrow because of the effect of inflation.
If I spent money today, my money spent can no longer work for me (via investment growth). That lost chance to invest is my opportunity cost. This transaction benefits the seller more than the buyer since cash (money) is taken out of my pocket (cashflow out).
The speed of cashflow can work for or against me.
Cashflow in = income
Cashflow out = expense
If my cashflow in is faster than my cashflow out, I will result with a net income.
How much I keep matters more than how much I earn.
Person A who earns $10k and spends $10k would have $0 left for any investment (in the same month).
Person B who earns $5k and spends $4k would have $1k left for investment (should any investment opportunity arises in the same month).
Notice that although Person B earns less than Person A, it is how much Person B got to keep that allows him to grow his wealth.
Therefore, if I wish to create my own discount, at my own terms, I can choose to stack my discount on top of the retailer’s discount. What is ‘my discount’? I am referring to dividend(s) or sales of shares, i.e. portion of income from the growth of my investment.
Consider this scenario…
I invested an amount and resulted in a dividend of $30. Now, during this time of the year, a sale happens and the item I have been eyeing is having a 30% discount. It was $100; now it is $70.
Level 1: The Discount That Discounts the Discount
When I spend $70 using my dividend of $30, I really only spent $40 from my active income.
My investment money (working capital) is still growing. My money is still working for me even when I sleep.
That is how I create my own discount, regardless whether a sale is going on or not.
Let’s take the thought experiment further. What if the retailer I purchase from is also the business I have shares in? I invest in it and I have a vested interest. I become a part-owner of the business. If the business does well, my investment does well. If its sales revenue and net profit does well, so shall the value of every share I own of the company. If I buy the products by the business, I contribute to its revenue…
So here lies a win-win-win situation I may have…
Level 2: The Discount That Becomes Your Discount
Buying a discounted item from the business I invest in using a portion of income from the growth of the business I invest in.
What’s the win-win-win about?
- Win for my investment – contribute to increase income
- Win for business – retailer increases income
- Win for me – I get my item (product)
What would the next level of self-created discount look like? What if my passive income/dividend is higher than the item?