Welcome to the Foolish Money Lab, where I don my jester's hat and put common personal-finance advice to the test. This month, your humble servant ventures intrepidly into the world of discount warehouses.
The theory
Personal finance advisors urge readers to buy everything from spaghetti to underwear in bulk. When you buy a number of items at once, you will often lower the price you pay for each one -- whether boxers or briefs. Shoppers can take this advice to extremes by tapping into a wealth of goods available at membership clubs such as Costco (Nasdaq: COST), BJ's Wholesale (NYSE: BJ), and Wal-Mart's (NYSE: WMT) Sam's Club.
The experience
To test the theory that warehouse shopping lowers expenses, I ventured curiously into Costco (the club closest to my home) with a shopping list and a notebook. It's called a "warehouse," but I was unprepared for the vast variety of stuff on sale, from diamonds to computer components to diapers. Who knew you could buy a Pirates of the Caribbean ship-shaped bed? (That's one thing Costco doesn't sell in bulk.)
Hunting through stacks and stacks of goods to find the things we regularly buy took a lot of time. I had to fortify myself with a hot dog and soda ($1.50) when my energy flagged. Eventually, though, I found enough items I wanted that I seriously considered a membership.
The results
My very sketchy price book made it easier for me to compare Costco's prices to the amount we regularly pay. We could clearly get bargains on cereal, energy bars, cheese, veggie burgers, and other things we consume in bulk. Ultimately, however, it was the prospect of cheap gas that really sold me on the idea. We could recoup our $50 membership fee with their lower-priced gasoline alone.
But there's a catch. Although I'm good at shopping with a list, my adventures in warehouse shopping have already added some extra expenses. First, we decided to pay $40 for utility shelves for the basement to build our own little storehouse, and then I fell for the chocolate and raspberry ruggalach ($6.99). And to be more realistic, I'll probably need to add the price of stops at that hot-dog stand into my budget.
And here's one more factor to consider: Warehouse shopping will lower your expenses over the long term, but you will front-load your expenses. That can cause a few burps in your cash flow if you're not ready to cover those big costs up front.
Money Lab recommendation
A warehouse membership will definitely get you more consumables for your dollars. Whether it's best for your shopping and budgeting styles is another question.
If you want to reduce the money that flows your bank accounts, a carefully managed warehouse membership can help. Investigate the goods on offer and make sure they stock what you need at prices less than you regularly pay. You'll have to strictly follow all the regular rules about shopping by making lists and sticking to them.
If impulse shopping tends to foil your budget, though, a warehouse membership may not be best for you. There's temptation at every turn. I nearly walked out once with a very expensive external hard drive. We will need one eventually, but we don't need it right now. I got a hot dog instead.
For more ideas to curb your spending:
- Cut your grocery bills.
- Cut your health-care costs.
- Lower your taxes.
