Sunday, February 22, 2009

Understand the macroeconomic picture

If you need to buy a vehicle or do some major renovations, you need to understand the macroeconomic picture.

What do I mean? basically, everything is about supply and demand. When supply is up and demand is down, prices will inevitably fall. The same can be said about the supply and demand of services and of products.

We are in the market for a vehicle in preparation for a potential family expansion. We realize that the current market for vehicles is still somewhat "hot" in that vehicle sellers will become slightly more desperate once they see that cars pile up in their lots. As such, by understanding the macroeconomics, we choose to wait for vehicles to come on sale. We don't really care about any financing or lease deals, as we will be paying cash for that car, so we can wait.

Likewise, with something like house renovations. We do understand that there are significant numbers of people who have been laid off from the oil sands and will be/have been flooding the Maritime provinces. This is going to significantly drive down labor rates and we're willing to wait. Plus, the federal government is now giving tax credits to do renovations and we feel that this is temporarily inflating the market for renovations. As smart consumers, we choose not to fight for a limited pool of labor with those people who are experiencing low interest rates and can therefore afford renovations based on credit.

So, a thorough understanding of the macroeconomics can also be helpful in a frugal lifestyle because certain decisions can be made in the context of supply and demand and therefore you usually can get lower prices as a result. Moreover, because of the frugal lifestyle that we live, we have no need for credit to the finance any of these major purchases.

That being said, it's always just difficult to predict the future.

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