“The things you own end up owning you”
– Tyler Durden, Fight Club
One of the biggest trends recently is the minimalist philosophy as seen with the popular Netflix show Tidying Up with Marie Kondo along with her best-selling book, The Life-Changing Magic of Tidying Up. I’ve watched her show and read her book and love the simplicity of her system, and it’s led to thousands of people either selling or giving their things away. But why do so many of us struggle with letting go in the first place? Psychologists Amos Tversky and Daniel Kahneman identified this as loss aversion, which refers to our tendency to strongly prefer avoiding losses over acquiring gains. Putting it simply, we prefer to hold onto our possessions rather than see them go. How can you get past this mental roadblock to simplify your life, generate cash flow, and avoid making a costly purchase mistake? It’s not easy but here are a few tips.
1) The one year rule
I’m personally guilty of moving boxes I hadn’t unpacked from my previous move until one day, I said to myself, “if I haven’t unpacked them, I must not need them.” It may seem ruthless but get rid of everything you haven’t used in the past year. Marie Kondo classifies the order as:
- Komono (miscellaneous items)
- Sentimental items
Go through each item in each category and while Marie Kondo says you should ask yourself if the item brings you joy, I’m more for the one year rule. Have you used it in the past year? No? Get rid of it. How many pairs of jeans or shirts can one person really own? This may be hard to do for everything and no one is perfect. While I follow the one year rule, I make an exception for books, some sentimental items, and certain papers I need for record keeping.
2) Accept the market price
While many people find it hard to let go of their things, they also tend to overvalue them. This is referred to as the endowment effect, which is the idea that people ascribe more value to things merely because they own them. Think of the last time you bought a nice pair of jeans. Now try to sell them on Kijiji. I can almost guarantee that the price someone else is willing to pay is far less than what you feel they are worth considering the price you paid. This is seen all the time in transactions where the buyer wants a lower price but the seller believes what they own is worth far more.
The best way to handle this when trying to sell your things is to google the current market price and set your price accordingly. To find the market price go onto eBay, search up what you are selling, and click on the completed listings. You’re looking for successfully sold products, and based on those you’ll see what the market price. Chances are it’s less than what you were hoping but the good news is you are still generating positive cash flow and knowing the market price makes it easier to list your items fairly.
3) Be aware of ownership peculiarities
In Dan Ariely’s book, Predictably Irrational, he writes that ownership has peculiarities. For one, the more work you put into something, the more value you ascribe to it. Think of the last time you helped put something together. That pride of hard-work means you ascribe more ownership to it and it’ll be harder to let go in the future. This is not necessarily a bad thing if you know you will be using it regularly, say a couch or another piece of furniture. But if you don’t use it and are thinking about getting rid of it, it’ll be that much hard to let go if you put hard work into putting it together.
We can also feel ownership before we own something. Think about the last time you used eBay and were outbid on an item. You were probably already envisioning owning it, and how good it would look on you or how fun it would be to play. But now that you were outbid, you feel like it’s yours and you increase your bid higher than what you had originally planned.
Trial promotions have a similar effect on us. We get a promo for a higher internet package and once the trial ends it’s hard to go back to a slower speed. It’s psychologically painful for us to “downgrade” to a slower speed even though it might better meet our needs. This goes back to the idea of loss aversion.
Knowing our peculiarities allows us to be more aware when we find ourselves in these situations.
4) It’s easier to get rid of something the less you paid for it
This may seem simple enough. If you have a pair of high-end shoes that you never wear but it’s taking up space in your closet, it’s harder to sell them than if you got them on sale on Black Friday. This is another reason why I advocate in my book, Kicking Financial Ass, the following when buying something:
- Search online for promo codes. You’d be surprised at what you may find. I feel like a sucker if I pay full price for anything anymore.
- Buy used. You can find like new things at a fraction of the price if you look on eBay or Kijiji.
- Wait for a sale. Black Friday or Boxing Day in Canada is a great time to make purchases. Some stores have annual or semi-annual sales that you can take advantage of. Tip: Use the site camelcamelcamel.com to track prices on Amazon to see how good of a price you are really paying based on historical trends.
5) Ask yourself if you need something
Is the purchase going to add value to your life? Marie Kondo asks her audience if it brings them joy. This is important because the second you make a purchase you are likely to experience loss aversion if you decide you want to sell it later down the road. Another way of thinking about it, is the purchase taking away a negative? If what you are buying is making your life easier, then it’s easier to make that purchase. The idea is to not stop making purchases but to be more mindful if the purchase is truly adding value.
6) It gets easier with practice
The first time you try and sell something or give it away, you are likely to experience pain. And if you follow through with it, you are likely to regret your choice. But like with muscles, the more you practice, the easier it gets. This is not easy. Daniel Kahneman, in his book Thinking, Fast and Slow, states that loss aversion is about 1.5 to 2 times stronger than your will to win, at least when it comes to money. Getting organized or downsizing does not happen overnight, it’s a conscious practice you should incorporate into your life and requires concentration and courage.
- Feeling freerer and liberated by not having your belongings own you. Embrace minimalism and be like Tyler Durden.
- Generating cash flow by selling things you no longer need. This is great as a side hustle. There is a limit to how much you can sell but it’ll be a good start for an emergency fund, pay off debt, or to save for your retirement. The last purge I did generated over $2,000.
- Feeling more confident in your purchase decisions. By being more mindful about purchases you will feel that you made the right decision and experience buyer’s remorse less often.
- Being satisfied with what you have. By simplifying your life and purging things you no longer use, your purchases will become more infrequent as the things you own already bring you joy. This will save you a lot of money over time that you can use to save for retirement or achieve other financial goals.
1) Start with the small stuff
I continue to be surprised with what people buy. One of my friends sold electric toothbrush heads on Kijiji so nothing is off limits (they were still new). Additionally, the smaller things can be easier to part with and can help build your confidence in selling the larger items.
2) Describe your items well
The more detail you put into the description, the more likely it sells. Take photos of every angle and be honest about the state the item is in. If there’s a scratch, say so. It goes a long way in ensuring the purchaser is happy, and if you sell on eBay, having a positive feedback rating can lead to higher prices.
3) Sell online
Garage sales are so 90’s. If you want to sell your things the best way is to sell them online. I’ve had a lot of success with Kijiji, Craigslist, and Letgo but there are other apps as well. I’m also a fan of eBay if the item you’re selling is a little more niche. Likely there is a buyer somewhere in the world that would want what you are selling and the buyer always pays for the shipping costs.
Legal Disclaimer: The views expressed by Mr. Dumont on Money Sensei are solely his and not intended as investment advice nor a guarantee of any financial return. Mr. Dumont is not an investment or tax professional, so the information contained on the blog is not a substitute for professional advice. The contents of this blog are accurate to the best of his knowledge at the time of posting, but rules and laws are ever-changing. Please do your research to confirm that you have the current information.
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