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Negotiation PDF Print E-mail
Written by John D. Buerger, CFP®   
Monday, 15 November 2010 15:53
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John Buerger

If you were buying a new flat screen TV and you could save $1000 on the purchase, would you do it?

Most people would answer, "Yes!" to that question. Heck, with today's prices and a $1000 discount you could get a decent flat screen TV for free. But even if the TV in question cost $3000 (a really nice TV) you would still go for the discount and probably travel a hundred miles and jump through some other hoops to get it, right (provided you really were in the market for a new TV)?

Well, that may depend on what those other hoops are.

What if one of those hoops involved asking for the discount, would you still do it? Would you threaten to walk away from the deal if you didn't get the discount even after you asked for it?

These are parts of the negotiating process ... and negotiating is an excellent way to build wealth. If you can pay consistently less for everything you are going to buy anyway, you improve your cash flow. Cash flow (as we've written here before) is the key to building wealth. Yet like so many wealth building techniques that are tried and true and always work (like spending less than you make), very few people actually engage in them.

This may explain why only a very small percentage of Americans has any kind of financial freedom. It's not that the rich are robbing from the poor and middle class. Mostly it is that the poor and middle class refuse to learn the basics of building wealth. They aren't willing to do the hard work necessary to save their money and grow it. If a freebie is handed to your neighbors as a gift, sure they'll take it (which is why politicians are always offering gifts to their constituents in return for votes). But when it comes to actually working through a process that is inconvenient or uncomfortable, most people give up. It's just too hard.

The end result - most people pay more than they need to for just about everything in life because they are afraid to negotiate. The hassle, angst and emotional commitment of the process is too much for them.

MOVING ZEROS

One of my favorite exercises in personal finance is to add or subtract a zero. Doing so adds a whole new dynamic to any situation.

If you could save $100 on a $300 purchase (subtracting a zero), would you do it? Would you negotiate more or less? The cellular providers manipulate people all the time with this. They give you a $100 off a $300 phone and get you to sign a two year contract (for $100 a month) in the process. Does anybody buy a cell phone without asking for the promotional rate?

ADD A ZERO

If you could save $10,000 on a $30,000 purchase (adding a zero here), would you do it? How many hoops would you jump through for that kind of savings? Would you put up with more hassles because the reward was bigger?

Interestingly enough, most people won't work much harder to save $10,000 on a $30,000 purchase than they will to save $1000 on a $3000 purchase. Even though the savings are the same (on a percentage basis), there is a threshold of how MUCH savings (on an absolute basis) people are willing to negotiate.

Folks who buy really expensive cars are more likely to pay the sticker price than those buying the budget model ... even though that expensive car has padded the pricing with loads more profit than the stripped down econo-car.

This little behavior quirk also explains runaway medical costs - especially on the more expensive procedures (which have a tendency to be about prolonging life for a few weeks or months on an otherwise terminal patient).

NEGOTIATING COLLEGE COSTS

I'm a College Funding Specialist. I help families find ways to afford college education for their kids. The average cost of attendance to a four year university is almost $30,000 and there are certainly many places that charge more. It is possible to save $10,000 on college outlays every year simply by positioning assets appropriately (for example - don't have money in your student's name in a savings account) and filling out and submitting the FAFSA financial aid form.

You would be shocked at how many parents refuse to even APPLY for financial aid. They are convinced they make too much​ money and they don't want to go through the hassles and inconvenience (​or appearing not to be at the top of the income ladder)​ of asking for help. Instead they will borrow money out of their home (if they have any equity left) or deplete their retirement savings to pay the bill - all because of pride.

IT​'S NOT TOO LATE

Here's my mea culpa - I used to pay full price for everything. I hated negotiating. I won't say that I like it much now - I still find the process uncomfortable and a bit unnerving at times. Allyson, my wife of 19 years, is the chief negotiator in our family and that is fine with me. But today I will always ASK for the discount, especially on the bigger ticket items.

Saving $1 on something may not be worth the hassle, but saving $1,000 or $10,000 definitely is.

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Comments (1)
1 Tuesday, 05 April 2011 19:17
Kevin@OutOfYourRut
Lack of negotiation might be an American thing--or dilemma, depending on how you view it. In many foreign cultures, haggling over price is a regular part of the buying experience. Buyers do it, sellers expect it. Somehow in America it isn't "cool" to haggle.

I'm guessing it's one of two things: 1) We don't want to offend the person we're buying from--maybe in the hope that no one will offend us when we're in the sellers shoes, or 2) haggling might convey the message that we can't afford something.

That being said, I think there IS a measure of financial freedom that comes with negotiating. The better we are at it, the less we pay for just about everything. It seems like a skill worth learning. And it is a skill!

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Last Updated on Monday, 15 November 2010 23:56