Jolly-old-saint-nick

The paunch represents dead-weight loss.

I’m quite certain that many of you have realized that it is Christmas today.  That doesn’t mean the Thousandaire takes a day off!  There’s money to save, invest, and earn or what have you.  (Full disclosure: I wrote this earlier, but you’re probably reading it after Christmas anyway.)  So what in the personal finance world is special about Christmas?  Well today, unfortunately, is the day that people spend money sub-optimally, and let me be the first to say, that’s OK!  Our goal in life isn’t to optimally spend every penny we make.  However, it does create an opportunity because the Market abhors inefficiency.

The Problem

What do I mean when I say sub-optimally?  Well, basically on Christmas people buy each other things they wouldn’t have bought themselves at a price they wouldn’t have paid.  That’s not to say that people don’t enjoy their gifts.  They surely do!  They just often don’t enjoy the things themselves as much as they would have enjoyed the cash.  Apparently folks are willing to pay about 71% of what the gifts they receive actually cost.  That extra 29% is economic inefficiency (if this were thermodynamics you might call the inefficiency “excess heat” AKA a “warm glow”, but economists are a humorless bunch.  They call it “dead-weight loss”. )

The solution

So what?  Well this inefficiency results in people returning gifts (perish the thought).  Some of those gifts that people would like to return are gift cards.  You might not be as into Knit ‘n’ Yarn Emporium as your grandparents thought you were.  So what are you to do?  Well you go somewhere like raise.com and sell that gift card.  This has the effect of depressing the price of third party gift cards right after Christmas.

That’s exactly the perfect time for Thousandaire’s to strike.  While I rarely advocate spending money to save money this is an instance where it might work out just fine.  If you know that you spend a certain amount on average at a particular store from year to year (guilty secret: Noodle’s & co obtains far more of my paycheck than is truly conscionable), you can go ahead and purchase say, half the amount you normally spend in a year, and thereby save something like 20% off of your regular spending.

Budgeting

This is the easiest thing in the world to give into temptation and screw up. Sometimes when people have a gift card they treat it as an excuse to spend money they otherwise wouldn’t have.  You decide to go out to eat when you weren’t planning on it.  You decide to make an extra shopping trip to use it up.  This will do the opposite of what we want.  Seriously Obi-Wan will be upset:

ObiWan

An idea I have toyed with but have yet to attempt is to mix these discount gift-cards with the envelope budgeting system. For those of you who are unfamiliar with the system.  Normally you have a bunch of envelopes at the beginning of each month with cash in them based on a budget that you create.  Each of these are marked for a certain expense.  You might have a “groceries” envelope, and a “eating out” envelope.  When you run out of cash in the envelop that’s it, you’re out, no more Applebee’s until next month.

So instead of cash, buy your steeply discounted gift cards today (or heck, maybe tomorrow) then build the spending of them into your regular envelop budget, removing cash in exchange for the gift cards on a $1 to $1 basis.  This way you’ll actually experience the cash savings that the gift card discounts are getting you.  Take that money and buy yourself something nice, like shares of Berkshire Hathaway.  (Drool, productive assets).

(If you do go through raise.com to buy the giftcard keep in mind that if you’re an iconsumer member you can stack a further discount.)