I’m a big believer of buying in bulk simply because of the savings you can earn on a bulk purchase. For example, let’s say that I like to buy a $10 bottle of wine each Saturday for drinking with dinner with my wife. However, I find out that if I buy it by the case from the local wine seller, I can buy it for $108, or a savings of $1 a bottle. That’s a 10% savings, right?
That sounds good, but then someone made the point that you’re tying up your money in that wine and you could be investing it so that it earns more than 10%. With this perspective, you’re looking at buying in bulk as an investment, so let’s treat it as an investment.
You’re tying up $108 to buy this case of wine. Each week, you’re going to remove 1/12th of the value of that case ($9 each time) and produce something with a $10 value. Let’s go through the first couple of weeks.
One week after buying the case that you’ve invested $108 in, you remove a single bottle of wine from it. This removes 1/12th of the value of the investment, knocking it down to $99, but you also have a $10 bottle of wine in your hands, bringing it back to $109. Thus, in one week, your investment grew from $108 to $109. This is a 0.925% growth in your investment in one week. If you calculate that out, that first bottle is a 61.49% annual return on your investment.
At the end of week two, you remove another bottle of wine from your $99 case. That drops the value of the case to $90, but you get a $10 bottle of wine, bringing it back to $100. Thus, in two weeks of investment, your investment went from $99 to $100, slightly over 1% growth. That comes out to being a 29.86% annual return on your investment in that second bottle.
If you do this calculation for each bottle, then average the returns on each bottle, you’ll see that buying a case of wine from an investment standpoint isn’t just a 10% savings, but actually a 26.23% return on investment. This isn’t even including the fact that you’re saving time (no weekly runs to get a wine bottle) and money (the cost of going to the wine shop) beyond that.
If you think that this is somehow an unfair comparison, remember that investments are quoted based on annual rates of return and also consider that you are simply withdrawing your investment in order to spend the profits on a bottle of wine to enjoy (or whatever item you buy in bulk). If you use that same filter to view buying things in bulk, you’ll discover that indeed you are earning a very nice return as compared to buying them normally.
In other words, I can’t wait to have a home so that I can fill a deep freeze and a portion of the basement with “investments” like these.