Two Crucial Skills to Save More Effectively
Let me begin with a quick story that illustrates my own personal experiences in how difficult it can be to master both skills and how lack of proficiency in either can hurt one financially.
The Case of the Expensive Locksmith
We locked ourselves out of our apartment once almost dozen or so years ago (well before smartphones, services such as TaskRabbit and the pervasiveness of online reviews at Yelp and other sites). I called a lock smith by looking up Yellow Pages (yeah, millennials that’s the way we did it back then!). When I called him up and asked him to come to our address, the first warning was that he did not give me a price quote though I asked him. Once he arrived (late) he proceeded to completely drill the lock rendering it useless and then proclaimed that the cost was $345.00 (yes, you got that right the decimal point is really in the right place). Common sense told me that this was ridiculous and so I tried to negotiate him down. He connected me to his super and I got the price down to $245. A $100 savings right? A super negotiator who whacked the original price down by more than a third? Hardly, had I been more careful I could have gotten this done for about $35. I paid then almost 7 times what I should have paid! This proves the old Ben Franklin adage “Small leaks sink big ships!”
What should I have done instead?
Two obvious things — which are the basis of this post. First, I should have been better at “assessing” the “fair market value” (FMV)of the good/service I was purchasing or selling. In almost all cases, you can get a sense of the FMV by getting two or more quotes. Had I taken the time to call another lock-smith I would have gotten another quote — which would have made me better informed which would have allowed me to negotiate from a position of strength and secured the fair value I sought.
Second, I should have been better at “negotiating” the value I sought. Having information is obviously a core component of being a better negotiator. But there are other aspects to better negotiating: gauging trust-worthiness of the counter-party, being prepared to walk away, and almost elementally, getting the quote before the service is performed, etc. There are other techniques to better negotiating — and there are numerous great books on this topic to help one improve. One book that I have found particularly useful is Prof. Robert Cialdini’s “Psychology of Persuasion”.
Use Common Sense
There is one aspect of “assessing” and “negotiating” that is super-important — and something that cannot be taught — using common-sense. Setting aside all the complexities of “assessing” value and then “negotiating” it (and in some domains these can be very difficult and technical — like negotiating with investors, for example), always apply (and, trust) common-sense. To continue with my lock-smith example:
- Common sense would have told me that 5 minutes of work with no cost for parts that cost $245 puts the lock-smith in esteemed company making almost $3000 an hour! Far more than pricey Wall Street investment bankers, strategic advisors or lawyers!
- Common sense should have told me to trust my gut instinct which reacted negatively when the lock-smith would not give me a firm quote on the phone. I ignored my gut instinct.
So how can one improve in “assessing” and “negotiating”?
By practice, of course. The key to better “assessing” is better information — be armed with relevant information that allows you to make informed decisions about the parties you choose to do business with.
On better “negotiating” sadly though books may teach you how, it’s often hard to put into practice. For most of us, negotiating comes across as confrontation which a lot of us shy away from. Look in your circle of friends and family to identify those who you believe are savvy negotiators and practice, and learn from, them!
To be able to save more effectively, two core skills that all of us need to become better at are: assess value appropriately and negotiate effectively.
Did this post resonate with you, affirm your own thinking or made you think differently? If so, I’d love it if you would please clap below. Feel free to share ideas, insights, critiques in the responses below or contact me by email (info on my profile).