Open To Buy
Several weeks ago I had the opportunity to revisit the concept of “open-to-buy” – a methodology used to determine how much inventory a retailer should buy. Coincidentally, a young friend preparing for college graduation asked me for financial management tips he might employ as he enters the workforce.
In brief, a retailer is “open-to-buy” an amount of inventory equal to a percentage of the gross sales in a previous period. This technique automatically (through the mysteries of mathematics) results in buying more inventory when sales are increasing and in purchasing less inventory as sales decrease. It minimizes the chance that a retailer, whose sales are declining, will overinvest and have to sell products at reduced margins, thus facing declining profits.
Considering how to respond to my young friend, I began to think that using the “open-to-buy” concept in our personal budgeting decisions might be quite useful. Its diligent use provides an automatic budgeting tool that will never result in unplanned overspending. Because the tool only guides spending amounts, not spending choices, it allows for users to spend according to their personal preferences. It does leave room for borrowing for major purchases such as a car or home, as long as the debt repayment reduces the future “open-to-buy” total.
My young friend, then, would only spend during the first year of employment, what he earned during his final year of study. Yes, he would have to live ‘the student life’ one more year. No, he wouldn’t enjoy immediately the fruits of his labor. He would, in effect, delay spending gratification for one year. And he would still need to decide what percentage of his previous income becomes available in the next period for spending.
What’s my specific advice? Spend no more than 85-90% of last year’s income this year. This simple guideline will result in ongoing saving, spending control and a habit of delaying gratification that is likely to result in controlled spending habits over a lifetime.
The Lenten Season incorporates sacrifice into our daily lives. Might delaying gratification through spending control help form personal behaviors in our spiritual life? Waiting patiently to enjoy worldly goods may refocus our attention on the beauties of our natural world and family members that God gifts to us every day.
Burns is Diocesan Director of Catholic Charities, and of the Office of Hispanic Ministries.