Best financial advice given by a professor of Economics

The best piece of financial advice was given to me by my professor of Economics.

Situation 1: It is late night and you are walking home from office after a long and tiring day. You are thirsty but your water bottle is empty. Your house is still far and you know that if you don’t drink water soon, you will not be able to walk.

Suddenly, you see an open shop in the distance. A convenience store! You approach the owner and ask for a bottle of water. He hands over a bottle of water to you.

You are delighted to hold the bottle in your hand and a sense of happiness surrounds you. You check the bottle for the MRP indication. It is Rs.10, you remove the cash and hand it over to the owner. The owner looks at you and says “The price will be Rs. 20”

You look at him in disbelief. You know your legal rights and that the owner is unethical and wrong. There is no way out at the moment, and you eventually pay him Rs.20.

Situation 2: It is again late night and you are walking home after a tiring day. You feel thirsty but you remember you have ample water with you. So you remove your water bottle, quench your thirst and continue your journey home. On the way, as you pass by a convenience store, the owner approaches you and says, “Today, we have an irresistible offer and you just cannot miss it. A water bottle of MRP Rs.10 is available at Re.1 only! Hurry up, offer expires midnight!””

You look at him, smile and walk away.

So what do we learn?

The principle is simple; If there is a genuine need, it is okay to pay even Rs.20 for a thing costing Rs.10. but if there is no need, it is not okay to pay even Re.1 for a thing costing Rs.10, no matter how good the offer seems!

This is such a basic principle that we always tend to ignore it.

So before you proceed to pounce on that next great online offer before it expires, ask yourself – “Do I really need this?” This always helps me keep things in perspective while purchasing anything and is undoubtedly the most valuable financial advice that I have ever received.

And I would like to end by quoting Tyler Durden – “We buy things we don’t need, with money we don’t have, to impress people we don’t like”.

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