Life Lessons - The Importance of the Safety Fund

I have written quite a bit lately about the different influences the economic downturn has had on the world. I have yet to really talk about how it has influenced me. I first started to realize we were in a recession when I was looking to buy an investment property with a friend. When we started talking about putting in the required amount for a down payment I realized that I had little to no cash on hand. I had plenty in investments and retirement but didn't maintain a safety fund with liquid cash. I try to optimize all my money right when it comes in so that my checking is as close to zero as possible at all times. However, without cash equivalents on hand I was assuming (dangerously) that nothing unexpected would arise. That assumption is a good way to start down the path of excessive credit card debt. In this case it also limited my opportunities to purchase an investment property.

When the market took a dive I watched like everyone else as my investments plummeted. Now I have a personal rule that I do not cash out any investments. I have yet to do so since I started investing. That will likely change when my wife and I purchase our next home. But what would have happened during this time frame if I had an unexpected life emergency and needed some cash? I would have cost myself literally thousands of dollars by locking in my losses in the market instead of riding out the paper losses and taking advantage of stocks on sale. That realization plus my desire to have some cash on hand in the event of a real estate investment opportunity caused me to start stashing cash, in a money market of course.

I have built up enough in cash reserves that I am now investing almost all of my money in the market again. But the other day I benefited from the life lesson that the recession taught me. I came back from being out of town for two weeks and my car had a flat. The tires were pretty old so I was already in the mindset that I was out about $500 for new tires. However, I got the classic call from the mechanic later that day that there were some other things wrong with my car. After going in and seeing for myself I negotiated a 10% discount and figured out what was necessary and what was 'preventive maintenance.' I got the bill knocked down from a whopping $2200 plus down to a slightly less painful $1600. Was I upset? Yeah I was pissed. But as the shock of the bill wore off I realized that I had put myself in a spot that I could recover from this setback. $1600 is a lot of money for me and for most people I know, especially when you don't get much tangible value out of it. But it had to be done and I was prepared. I put it on the US Air credit card to rack up some miles, I negotiated a discount on a big ticket item, and I had given myself the ability to pay it all off and replenish the portion of my safety fund in upcoming months. Adversity is learning and there isn't a purchase in your life that will put you through more adversity than a car.

Guitars, Negotiation and Saving Money

Yesterday I bought that little beauty pictured next to what you are reading. The "Ibanez PF5ECE Acoustic Electric Guitar with Cutaway" is listed in most stores and on the Internet for around $299.00, but I didn't pay that much for it. Why? Because I asked.

I have expressed my inability to relate to cheapskates that say to stay inside, sew your own clothes, spend all night cutting out coupons for your shopping, etc. I think those dudes are ridiculous. Who wants to live like that? And better yet, who has the time?

I am a few pages into Ramit Sethi's "I Will Teach You To Be Rich," and it is really good so far. The one point that he made that I liked was that people don't focus on the large stuff, they are always focused on finding that cheaper latte or something along those lines. I thought that was a great way to look at it. I have been meaning to get better at negotiation and being assertive. My wife is always on me about being more assertive with people I don't know. For some reason I am really shy with people I don't know which definitely isn't indicative of my personality once I get to know you. I am the kind of guy who orders something at a restaurant and gets the wrong order and just eats it anyways because I don't want to trouble the waitress or something? I don't really know why I don't say anything to be quite honest but that is the way I am.

My point is that I have been trying to put myself out there more with people I don't know. I really want to focus on getting better at negotiation. So yesterday when I went to purchase my guitar I knew that I wasn't going to pay retail value for it. Everything is negotiable I kept telling myself. I ran through a couple scenarios in my head of how I was going to deal with common responses and rejections. However, when I got there and asked for a military discount (which was my first strategy) the guy had a brother in the military. They obviously had no formal military discount at Guitar Center but he went and asked his manager. He came back and said he could give me 10% off, and just like that I had saved myself some significant money. Not only that, we started talking about his brother a little bit and he recommended the guitar that I ended up buying which wasn't even in the showroom. The guitar kicked ass for the money and I found it all because I pushed myself to negotiate. Now I wouldn't even really call this scenario negotiating, but I imagine this scenario would unfold more often if I went into more experiences prepared to negotiate.

Back to Ramit's point, most people spend so much time and energy on finding that discount or sale on a latte or laundry detergent but then they walk into a Guitar Center and buy a $300 guitar because that is what the price is in the store. Focus on big ticket items when you try to save. I am using experiences like my guitar buying experience as practice. How am I going to negotiate on my next property when I can't even negotiate a guitar from a headbanger at Guitar Center? Something I am still working on but its food for thought.