Want to save money? Don't bulk buy!

Want to save money? Don't bulk buy!  You can save money by buying in bulk - if you do it right. But most of the time, households are better off just managing their cash flows.
Ok, you got me. That isn't really accurate. You can save money by buying in bulk - if you do it right. But most of the time, households are better off just managing their cash flows.

First off, yes you do get a lower price (per unit, that is) by buying in bulk. But it's not that straight-forward.

And good personal finance decisions often can be analogous to what a responsible company would do in similar situations. Taking stock of your personal net worth is pretty much a company's balance sheet. And assessing your cashflow is like a company's income statement.

And since companies buy in large quantities, it makes sense that we should do so if we can, right?

Actually, no.

Companies, typically try to minimize inventory. Even for things critical to their business, they tend to keep enough to tide them over until the next shipment comes and a some extra in case deliveries are delayed.

Huge companies actually pay a lot of money for software to manage inventory. And "manage" partly means making sure they're not ordering too much or too soon. (And I know this because I worked for IT companies that provided those software.)

Not ordering too much or too soon - does that really sound like bulk buying?

Sure, their orders are huge when they make them. But when they time it like that, it's really more like buying the larger size rather than bulk-buying.

And the reason companies time it is a bit telling too: Cash is a more flexible asset. At practically any time, you can exchange it for what you need more. You don't want to use it up to buy toothpaste (for example), because you wont be able to trade that for tissue paper when a sudden need arises.

And for most households, the same reasoning carries weight as well. Pretty much everyone knows not to buy a boatload of shampoo that happens to be at 50% off, and then have to scrounge around to buy materials for a school projector some other unexpected expense.

But bulk-buying is often sited as a money-saving technique when it comes to personal finance. It's worth noting that managing your cashflow is more important.


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photo credit: bulgarian via photopin (license)

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