Is “Profit” a Dirty Word in Your Own Personal Finances?

Over the years, a lot has been written about profit and the role it plays in our lives. After all, if a business doesn’t make a profit, it eventually will go out of business and that can affect an awful lot of people including you if you happen to be an employee. Even the biggest names in the business world have seen that happen over the years, like Woolworth and Montgomery Ward, just to name two. Many others are facing the same fate right this minute. Historic names like Sears, J.C. Penney, Neiman Marcus, and PetSmart are all teetering on the edge of extinction.

Some people find profit to be a dirty word, but businesses need to survive just like when you profit in your own personal finances.

But business isn’t the only entity that must be “profitable” in order to survive. Realistically speaking, individuals like you and me must be profitable too in order to function properly and have a lifestyle that makes us content and successful. So, why do we think of profit as a dirty word?

Why Should You Care About Profit Anyway?

Most of us get up each morning, brush our teeth, get dressed and do the thing that we do over and over for years and years: we go to work, right? It doesn’t really matter if that means you turn right at your kitchen and sit down in front of your computer and start typing a blog post every day or you are busy telecommuting with your employer half way across the world, That’s still called work.

But, more likely than not for now, you’re getting in your car and driving some distance in rush hour traffic, hoping to arrive safely in a place that will pay you to do some kind of task(s) or responsibility that you may not even like doing. But, you do it anyway and you are getting a paycheck for it and that, my friend, is making and giving you the money to support yourself and family. I call that working for “profit”. And when you put that into perspective…is there anything really evil about that? Is that money dirty? Unless you are a hitman or in some other “sinful” profession, you’d probably agree that it’s not.

So why do so many think that business profits are dirty? Aren’t they really trying to do just the same as what we are doing? Aren’t they just trying to support their businesses, themselves, and make life a little better for their employees and stockholders? Do you really find that something that you resent?

Is It Profit or “Excessive” Profit That We Actually Resent?

When you understand the basic principles of what profit is, you then can understand what an excessive profit means. Look, if you work in a job and get paid $10/hour and the company you work for does really, really well and makes huge profits, you may feel like you are underpaid and undervalued. You may feel you aren’t sharing fairly in the profits of your employer and you resent it. You might truly believe that it’s unfair and you deserve more pay and that they are making “excessive” profits at your expense. That’s a thought that is often held by many workers and it can result in the utterance of a few dirty words whenever that employee thinks or talks about it with anyone.

Excessive Profits are Evil and Dirty for Very Good Reasons

Think about this: Exxon-Mobil seems to set records almost every year with their reported company profits. The nation’s largest energy company said it earned $8.4 billion in profits in just the last three months of 2017, up from $1.7 billion during the same period in 2016. Those profits went up in part because of the new tax laws that went into effect last January. That extra $6 billion earned in tax benefits for the 4th quarter does make the profit just a little obscene. We think of it like this:

“How much is enough for these guys?” or “It costs me a fortune for gasoline because these companies are so damned greedy and evil!”

How Can You Better Cope with These Excessive Profits?

First, as a consumer of products and services you need to be aware of what the real value of something is whenever you purchase it. When it comes to your gasoline purchases, it’s likely to be pretty important to you. But, in many cases that’s not as easy to figure out as it sounds.

Most of us make some kind of attempt to find a good deal whenever we shop, even when it comes to something like gasoline. You can pay 40-50 cents more per gallon when you fill up your tank if you’re not careful, and all within just a few miles of each other on the same road. It really does boggle the mind to understand why that is.

But, when it comes to many other things we buy, we don’t always see the competitive prices or understand the intricacies of what the real value of something is and the reason for its cost to you. That is a real challenge.

“Shine Bright Like a Diamond”

When you look at diamond you can’t always see why one is priced at $1,000 and another, appearing to be very similar in size, costs five times as much. The value of it is determined by things you just can’t see with your eyes. You might think that there’s excessive profit somewhere in the mix, and there just may be! You really can’t be sure unless you are a gemologist.

Your best defense against being taken advantage of from unfair prices and excessive profit is to do your homework before you shop and try to understand something called “intrinsic value”.

Intrinsic Value and Your Wallet

The intrinsic value of an item or service is its “perceived” value, that is what the public believes something is worth. Often that’s very different from its “market” value which refers to value against competitors. When you buy anything, understand what it is worth to you and others and not just what the price tag says. For example, buying a bottle of water at a ballgame when you are sitting out in the sun on a hot summer day may mean you are willing to pay “excessive” prices for what might cost very little when you see it at your local supermarket. See what I mean?

It’s Always in the Small Details

Things made by hand and are one-of-a-kind fall into the same category of value. That’s why a Picasso can run you a few million bucks and paint by numbers of the same drawing just $3.99. You may pay more for some things for that reason, or you may be overpaying just because you don’t shop around enough and look at all of your choices. Sometimes it’s actually on you for caving in to excessive profits and prices, and not the seller’s fault.

A Real Life Experience That I Will Always Remember

I spent over 20 years working in retail stores dealing directly with businesses and customers and witnessing their reactions to the prices of what was being sold. Most of the time, the shoppers would just go with prices they saw although I did hear the phrase, “Is this ever going to be on sale?” uttered frequently. That shows that some people were doing a bit of homework or at least trying to do it. But of course, the word “ever” is a really long time, so I am not certain I could have even foreseen that kind of timeframe when actually asked!

But, there was one time I specifically recall a conversation with someone that has stuck with me now for 40 years. Here’s what happened. A women came into our department store a few months after the New Year holiday and wanted to return a “holiday” belt. You know the kind of sparkly ones that are worn for evening wear on nights like New Year’s Eve which many stores only carry during the holiday season.

The belt wasn’t worn and she just wanted to return it for a refund because she didn’t have any use for it. She had no receipt and our policy was no refunds after 30 days of purchase (of course I had the discretion to waive that rule if I deemed it appropriate). In this case, the return date was more like 100 days since the purchase, and all of our “holiday” merchandise was long gone. Some of it was even marked out of stock and disposed of (like these belts), after several mark downs eventually bringing the retail price to zero (yeah, that really does happen you skeptic!).

After the customer was informed that we weren’t going to give her a refund, I was called in to see what I could do about the dispute. I checked the fate of the belt and found that it had been disposed of at the price of zero. Even with that, I decided (as a gesture of goodwill and kindness) to issue her a store credit for it at 50% of its original price (that was actually what the store paid for the belt). Her response to that was a little bit remarkable. She said, “But then you will be making a profit on me!” My first thought in my head was, “yeah, that is what we do here and profit is not a dirty word!” Just for the record we weren’t actually going to make a profit on this transaction since there is also the cost of doing business including my exorbitant salary (just kidding)!

In this instance, the customer was using the word “profit” as a dirty word for sure. FYI, it cost more than half of the retail to actually sell an item and even if it didn’t, I would have had to throw out the belt since it was no longer a live item in our system as a saleable unit. So in effect, the offer I made was simply a gesture to minimize both of our losses. Besides, she could have just kept the belt and used it next year. She left the store with her belt and I assume that is what she did.

You Make the Final Decisions About Your Money and Your Purchases

In the end, the buying of anything is your decision. If you are smart and diligent you will know the value (to you) of what, when, and how you buy and spend. Even if profits are actually excessive profits and that offends you, the decision to buy is ultimately yours. If sellers and big companies insist on being excessive in pricing their products and services, it will be just be a matter of time and one more reason why they may ultimately fail, face bankruptcy, and cease to exist.

Final Thoughts

You can change your habits when it comes to shopping. The profit makers will be affected more by what you do than any other data point they use in their process of their decision making and that’s a great deal of power that you alone can control.

When you buy things at the beginning of their selling cycles, such as a new car in the fall of the year before rather than wait until the following summer, you are telling the car dealer you are fine with paying big corporate prices because you want it now. You control that situation.

If you buy your new swimsuit before the swim season begins, expect to pay higher prices for that same suit than you would after July 4th. That’s the way it works and you have to decide if you can live with that. Every time you spend your money, you can almost bet that someone else will be getting it for less, sometime, someplace. I wish you good luck and good shopping and I hope that you don’t have to utter any dirty words when you do.

How do you react when you feel like a price is excessive? Do you do your homework when you are shopping the market? When you buy a new car (if ever) do you shop at the beginning of the model year or wait until it’s a leftover for a better deal? Are you likely to negotiate when you shop and/or walk when you aren’t happy? Do you bend to your “wants” rather than wait until you find the best deal? Do you really understand the concept of intrinsic value?

Financially Savvy Saturdays

About Gary Weiner @ Super Saving Tips

Over the last 45 years I've worked in retail (department stores and supermarkets) and financial planning. In addition, I am a shopper, born and bred, who enjoys the challenges of finding the best items for the best prices. When I'm not busy saving money or writing here at Super Saving Tips, I enjoy baseball, music, and classic movies. I am retired and live in New Jersey with my wife.
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8 Comments

  1. Good post, Gary. I usually try to wait to see if prices will fall before purchasing an item.

    For example, instead of buying a pair of wireless headphones I really wanted, I waited three months for the price to drop. I got an alert saying an open box item was available.

    So instead of paying a retail price of $299, I ended up paying $100.

    To some, these headphones are still overpriced but I love them. I use them daily!

  2. Great post, very well written. Your great comment on Groovy’s post brought me over here.

    On the surface – taking away everything else – I’ve often thought that selling a widget for a profit is kinda weird. You buy something from China for $1 and you turn around and immediately sell the item to someone for $2. Being raised religious I would sometimes think “isn’t that kinda immoral?”

    But ‘away from the surface’, when you factor in having to get the item from China to here, having to have a store for people to come into to look at and buy goods, having to pay people to work at said store, etc etc… then a profit becomes necessary to even move goods around.

    One you start the “what is too much profit” conversation, that’s when I check out, because it’s so subjective. To me at the point, you have to decide, “are we gonna have free markets or not?”. If the answer is yes, then I’m not sure what “too much” means. Ultimately it’s up to the consumer. They have ALL the power.

    • You’re exactly right when you mention the power that consumers have. No one forces us to buy and spend our money on any particular product or service, unless of course it’s where you buy your electricity or other public service from. Having said that, I think you can influence businesses with your buying power and that is all part of the free market. I really appreciate your comments.

  3. There is absolutely nothing wrong with making a profit. As you said, I control when and where I spend my money. I personally think most people spend way too much money on cell phones. $800 for a phone, and a monthly service charge on top of that? I got mine for $100 and have paid $10 per month for the last six months. I don’t buy $200 outfits, nor do I rent clothes for $50 per month. If you are willing to pay to do so however, I don’t see any problem with a company taking your money. As far as my boss not paying me enough–I can always leave and get another job IF someone else will pay me more. Because teh companies in which I own stock are profitable, I’ve been able to save for retirement, and give to charity. Not a bad deal at all.

    • When it comes to your shopping habits, you’re obviously using really good judgment. But there are so many out there who don’t think carefully and are willing to pay whatever the “market will allow” and that can cause some to become victims of the excessive profit motive. Bottom line though is that they have only themselves to blame. When you’re investing, of course you’d like your investments to be with companies that are turning a profit. But somehow I always consider the methods that they’re using to make that profit and if they’re not honest and open about how they operate, I walk away from them. Thanks so much, RAnn.

  4. Hey, Gary, I got a tremendous CMLT reading this post. In fact, I scrolled to the top a few times to make sure the post was authored by you and not Ayn Rand or Thomas Sowell. Bravo, my friend.

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