3 Accounting Concepts for Stocking Up During the Coronavirus Pandemic
Many people, myself included, I've seen a rapid shift in their shopping habits due to the recent events surrounding COVID-19. The virus has fundamentally changed the way people shop for their daily supplies. With this in mind, I thought it would be a good opportunity to examine some accounting concepts that impact each and every one of us in the world of personal finance. So, the next time you find yourself shopping for goods (especially during this epidemic), see if you can incorporate the following concepts into your purchasing decisions.
Unit Costs
Now that many people have limited their grocery shopping to once a week or once every two weeks, the concept of unit cost becomes more important. The unit cost is the cost per unit obtained when purchasing something. This could be the cost for Apple, the cost per ounce, or the cost per roll of toilet paper. When shopping and buying goods for personal use, the best example of unit costs comes into buying the small pack or the family size pack. In many cases the family-size pack of a good is larger and has a lower unit cost then the standard size. Even though the family back of a good will have a larger price tag, the cost per unit could be lower. An important thing to remember about this is that this is not a new concept to retail businesses, and many producers have learned that the average consumer has begun to associate a family pack with having more value for the price paid. As a result, I've seen instances of the larger versions of products being sold at a higher unit cost than the standard size counterparts. If you aren't the type to take out your phone's calculator app and do the math on the unit cost of what you're purchasing, many grocery stores have the unit cost of the good’s listed on the price tag. It may be a little bit smaller than the total price, but in many cases, I've seen the unit cost listed right there in front of me in the grocery store aisle. If you haven't been looking at unit costs already, start now so you can pay the lowest price for what you’re buying.
Spoilage & Capacity
The concepts of spoilage and capacity are very interrelated when it comes to personal purchases. in the panic that has been brought on by the virus many people have been seeking to fill some of their supply reserves to capacity in fear of long-term restrictive isolation. An example of this that's very common is people are stocking up on home products such as toilet paper and groceries. The concept of capacity is applied differently depending on what is being purchased, but the general idea is that your home can only store so much supplies at a given time. Knowing this, it's important to ensure that the household has enough of everything to get by, and that not all the capacity is being taken up by toilet paper or eggs. While planning for an appropriate use of capacity is also important to understand the concept of spoilage. Spoilage occurs when a product is no longer usable in its intended form because of events subsequent to its purchase. Spoilage can occur because products expire after a certain period or aren't stored properly. What this means for the average person is that even though there's a global pandemic and it's important to stock up on essential supplies, it's critical to pay attention to how much is being purchased and how it's going to be stored and used over the coming weeks. The next time you go out on a supply run, make sure you're not buying too much of anything so you can avoid spoilage and issues related to capacity.
Cash Flow
The final concept is cash flow. With many people losing their jobs or at least having the uncertainty of whether they might be employed in the next few months, the concept of cash flow is very important to consider while financially planning for the future. Having the essentials at your home is very important no one wants to run out of toilet paper or run out of food. At the same time, if you spend all your money on toilet paper and food and then your air conditioner breaks, all the toilet paper in the world isn't going to save you from the summer heat. Scenarios like this exemplify why maintaining cash reserves and not overspending are going to be critical for many people in the coming months. The thought process and decision making around cash flow is going to vary from person to person because some people are going to be collecting unemployment while others are essential employees that could have their hours cut. When you're thinking about your cash flow in the coming months take the time to consider the following:
When are you going to get paid?
How much are you going to be paid?
What bills do you still have to pay during this pandemic?
Is your income stream secure?
Under the new circumstances what purchases are essential? Will that change?
Just like anything in personal finance, the best solutions for your situation will be PERSONAL, and will be different from those of other people. It’s important for you to take the above concepts into account and create the solution that is best for you.