Ask why…

I used to work for a company in their maintenance facility.  One day my boss called me into his office and said, “You need to take 5-why training.”  “Isn’t that just when you ask why 5 times?”, I replied.  “Yeah, pretty much” was his response.

The 5-why method is a process of drilling down to a root cause.  It is a very simple root cause analysis (and not very powerful) but it’s power is in that it can be used very easily by just about anyone.  Let’s use maintenance as an example.  Say a pump breaks down.

Scenario: Pump Breaks down.

Why?  Mechanical seal failed.  If you stopped at this point, you might simply try to  replace the mechanical seal or blame the manufacturer.  If you continue down with the process you will find…

Why?  Wrong seal used.

Why?  Proper seal not in the warehouse.

Why?  Inventory database not updated

Why?  don’t know…

You can see that the problem has shifted from a mechanical problem to a supply chain management problem.  Drilling down using the 5-why method helped to get to the root cause.  (though there may be further root causes, but we couldn’t find out the answer to this…)

When looking at assessing our wants vs our needs it is important to ask why.  The 5-why serves as an example as to why you shouldn’t stop at the first why.  You need to drill deeper.  If you want to get yourself out of debt, or to improve your money situation, you need to ask why several times.

Scenario 1

I want to buy the newest BMW. Why?

I need car.  Why? And a BMW is one of several cars, why a BMW?

Because I want to ride in style.  Why?

So people will be impressed with me, so I can impress my friends, my parents, so people will think that I’ve “made it”.

This is the point we want to get to.  You have to really look inside yourself and understand why you think you need something.  If it for status, you need to understand why you want that status.  If you have convinced yourself that you do, then can you find another way of attaining that?  Additionally, I’m assuming that being debt free is also important.  So where does this want sit in relation to that want?

The point of this exercise is not to make you stop buying things (though it kind of is).  The point is to get to the root problem as to why you think you need to buy these things.  What purpose are they filling?  Is it for status?  Is it to satisfy a need?

The hard part of this exercise is being honest with yourself.  For this to work, you have to look unflinchingly at the reasons behind your behavior.

Try it.  Ask yourself… why?

Price as a poor indicator of value

There are two ways to look at price as a function of value.  On the one hand, increasing price could be seen as an indicator of increasing value.  On the other hand, one item that performs the same function as another item but is cheaper can be seen as a better value.  Let’s examine the former first.

Axiom: Increasing price is an indicator of increasing value.  (i.e. price ~ value)

When it comes to value, it is very difficult to define what value is.  A Louis Vuitton purse performs the same function as a no-name brand purse, they both carry stuff.  However, one would argue that a Louis Vuitton purse carries a higher fashion status, and thus can add value to your life from a social perspective.  Other than this, I see no value in a Louis Vuitton purse.  Advocates of Louis Vuitton will point to higher quality stitching, to durability etc, but I think this is mostly false.  You can probably get a Louis Vuitton purse before they stamp the LV on it and you will note that it is 90% cheaper.  Same purse, but your friends aren’t as impressed.  Because of branding, increasing price does not equal increasing value.

Axiom: For a similar item of the same function, a lower price indicates higher value.

We could take the same example of the purse but I’d like to use something different.  Too often, and I’ve made this mistake myself, people buy things based solely on price, then are stuck in the cycle of replacing over and over.  I remember buying a pair of cheap jeans for $30.  I probably wore them 10 times before they tore on me.  I then bought a pair of raw denim jeans for $150.  I probably wore these jeans 300 times or more before they tore on me, and I wore them in much higher wear situations than the pair of cheap jeans.  When I’m looking at the store, the cheap jeans cost much less than the raw denim, but from a cost per use perspective, the raw denim jeans were about $0.50/use where the cheap pair were about $3/use.

My point here is that it does not make sense to make decisions on purchases solely on price.  There are many considerations one needs to take into account, like your financial situation, function (status or utility), durability, health etc.

I bring up health because my wife recently bought a travel mug for coffee.  She had her mind made up on a certain type and it was made up of recycled plastic.  When we got to the store, she found another one that was made of glass.  I encouraged her to buy the glass one because glass is inert and thus won’t release any compounds into her coffee.  I think the chances of that happening with the plastic are low, but they are not zero.  We paid more for the glass, but this is where the fuzzy definition of quality (read Zen and the Art of Motorcycle Maintenance) and value come in.

I would also like to point out that while somethings that perform the same function may cost more, they can be infinitely more durable, which means that they are probably more environmentally friendly, since less waste is being generated.

It really depends on why you are buying it.  We are encouraged to buy things so mindlessly.  Before you buy it, wait a second and ask yourself, “Why?”