You just gave away $31,000
- Rupam Deb
- May 29, 2017
- 3 min read
How many times do you ask for a discount when buying something or eating out in a restaurant. Most people do not. Most of us do not realize that the easiest way for us to get a better deal is just by ‘asking’. If you think it’s embarrassing to ask for discounts, or for any kind of ‘benefit’, then you have come to the right place.
Consider this….every day an average adult ends up doing several transactions. If we make it our habit to seek a better deal every single time, we will probably not get anything off the asking price most of the time…..however there will always be those few instances when we will surprise ourselves pleasantly.
It’s important to understand that real value of this benefit. Consider a simple back of the envelope arithmetic:
Let’s assume an average adult does 10 transactions every week worth $100/transaction….many of us do much more or much larger amounts, in our personal and professional lives put together….or sometimes the individual transaction amounts are a lot larger e.g. when we are buying a car or a home
Let’s assume we remember to ask for a better deal every single time
Even if we hit a success rate of only 20%…and during those 20% of occasions, we manage to get only 10% off the asking price
This results in a (very conservative) saving of 2*$10 or $20/week
NO BIG DEAL…right?
WRONG!
The actual value of the ‘$20 saving’ is much more than just an extra cappuccino a day…We probably do not bother ourselves with the ‘embarrassment’ of asking, because most of us treat the upside as just a small amount of money. In reality, this ‘20 bucks’ is just a symbolic figure, the real value of which lies in the underlying “habit of always asking….and sometimes ending up getting”. If we just calculate the Net Present Value (the net benefit today) of this habit, we encounter a completely different picture.
For those of us who are not familiar with the concept of Net Present Value…In this context, it can be explained somewhat like this….Let’s say I manage to get into a time machine, surfing my entire future life and collecting all the $$ discounts from all my future transactions …..putting them in a ‘box’ and bringing it back to my present self….while letting stuff like ‘time’ and ‘interest rates’ & ‘inflation” do whatever they got to do to the money in the box…..the money that I will finally find in the box today, will be the Net Present Value of this ‘time travel’
This very trait of always asking for a better deal…..at the current interest rates over an average adult life, would generate $31,212 of Net Present Value in the above example. This is exactly equivalent to someone giving you a cheque for $31,212…not sometime in remote future…but TODAY and ABSOLUTELY FREE! So another way of looking at it is…while each possible individual saving could be a small amount of just a few dollars, not worth haggling for (as per most people’s thinking), the actual $$ value of just this habit of asking is a very significant amount in our pocket today. And remember I have assumed very modest numbers. The actual value for many of our readers could be significantly higher…..I have explained the calculation at the end.
Would I like to pass an investment if it promises a Net Present Value of $31K?…ofcourse not!……and imagine this investment does not even require any upfront cash. All it needs is just developing a simple habit. In fact, very few investments would even come remotely close, in terms of the certainty of the upside.
So next time don’t be embarrassed to ask for that discount, instead, train yourself to be embarrassed when you pay the full asking price.
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Calculation (for those who are interested in the nerdy side of it):
Assumed savings/week : $20 Discount rate : 10-year treasury rate (as of 29th May 2017): 2.25%….assuming all the savings are invested in US Govt. 10-year bonds No. of weeks in a 50-year adult life (in reality the average life is much longer) : 50 X 52 = 2600 (this is the no. of periods) Rate per weekly period = (2.25/52)% = (0.043)% Open an excel sheet and type this formula in any cell for Present Value = PV(rate/period, no. of periods, -(Payment_amount)) = PV(0.043%,2600,-20) and you will get the present value of investing $20 every week in equivalent of 10 year US treasury bonds for a person’s adult life (which I have assumed as 50 years)
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