How to Make Life Easier With These 2 Accounting Methods

May 2018

Today we are going to discuss how a couple of concepts used in accounting can help make life easier for you. Sound far-fetched? It’s not! So, read on!

First, Let’s ‘Account’ for Some Terminology…

The concepts we will be using today are accounting methods used by companies to account for the value of their inventory. They are known as FIFO (first in, first out) and LIFO (last in, first out). Without getting too much into the details, FIFO assumes that inventory purchased or produced first will be used first, while LIFO assumes that inventory purchased or produced last will be used first. Depending on your business objective, there are advantages and disadvantages to each.

Some Business Examples:

Let’s look at some business examples so that it makes sense.

Example of FIFO: An example of FIFO is perishable goods such as vegetables at a grocery store. The grocery store will want to get rid of the ones that were put on the shelves first before they spoil.

Example of LIFO: An example of LIFO would be lumberyards who stack their heavy inventory in piles. They aren’t going to move all that lumber to get the stuff that came in first, they will simply take what’s at the top of the pile.

That’s all I am going to say about that, I’ve given you enough accounting knowledge so that you can understand what I am talking about in this blog post and just enough to make you dangerous!

Why Apply It to Your Personal Life?

I know what you are thinking, ‘ok, it sounds simple enough but why would I use it in my personal life?’ and ‘how would I use it in my personal life?’.

Let’s first tackle the ‘why’.

Used strategically, LIFO and FIFO can have the following benefits, they can help:

Save you money and inconvenience by not having to throw things away that have an expiration date.

Reduce time you spend waiting.

Give you easier access to things.

Give you an advantage over your classmates if you are in school.

How to Apply It to Your Personal Life

Now let’s talk about the ‘how to’.

Understanding the difference and being aware of the concepts of LIFO and FIFO can help you in your personal life.

There are times in your life when it makes sense for you to use the FIFO method and there are times in your life that it makes sense to use the LIFO method.

Here are some ways on how you can use your new understanding of LIFO and FIFO to make life easier.

When You Should Use FIFO

Let’s look at ways you can use FIFO to make life easier:

With food that expires – You will want to employ FIFO and make sure you arrange your fridge so that you use items such as milk, eggs, vegetables, and fruit that will expire soon before stuff you just bought.

Medication – Same goes for medication, arrange your medicine cabinet to use the stuff that will expire first before the stuff you just bought. If you read our blog post on divesting material things and decluttering you shouldn’t have any extra stuff lying around anyway. And if you read our post on JIT, you should be getting more just as you are running out.

Your Email Inbox – You can use LIFO or FIFO here and there are advantages to both. Utilizing FIFO means you won’t be procrastinating due to the fact you are taking care of older emails first, however you may not respond to recent urgent emails in time.

When You Should Use LIFO

Let’s now look at how you can use LIFO to make life easier:

Packing for a trip – Here you will want to utilize LIFO and pack your suitcase in a way that the stuff you will wear first will be at the top. Because no matter how hard you try, digging to the bottom of the suitcase always messes everything on top of it up!

Waiting in line – Lines always operate on a FIFO basis, so those in line first get served first. Think about Starbucks, whoever is in line first gets served first. BUT there is a clever way to get around this to turn it into a LIFO situation where you can get served first even if you arrive last. Yes, order online ahead of time, walk in past all the suckers in line, grab your coffee, and bounce! Other examples: tickets for a movie, bank – ATM or go inside.

Putting away laundry – Make sure you always put the socks, underwear, t-shirts, bras whatever you have just washed at the bottom and/or back of the drawer. This way you won’t keep wearing the same thing and wear it out too soon.

Packing your gym bag or briefcase – Similar to packing a suitcase, put in the stuff last that you want to use first.

Vehicles on a toll bridge – Get an easy pass to avoid FIFO.

In tray at work – If you want to get your shit done first put it in the pile last. That is assuming the person who is doing the work uses LIFO!

Your Email Inbox –Using LIFO means you may be putting off responding to emails you are procrastinating on. Also, you may miss out on opportunities that have an expiry date, not to mention not responding in a timely manner may make people think you are blowing them off.

When You Should Use…Both FIFO and LIFO to Make Life Easier

Sometimes both FIFO and LIFO come into play to make life easier. Are you confused?

Don’t be, let me explain the serial position effect.

Sounds complicated but it’s not. It basically states that people can recall the first and last items in a list better than the stuff in the middle. Remembering stuff that you saw first is also known as the primacy effect and recalling stuff you saw last is known as the recency effect.

Ok great, now how can you use it to your advantage to make life easier?

A few ways are when you are:

(1) Presenting – You probably want to go first to take advantage of the primacy effect or last to take advantage of the recency effect, but not in the middle.

(2) Interviewing – There is a lot of debate on this, some say you should interview first because you can make a good first impression, and if it is a day with a lot of good candidates it’s bad to be last. Some say you should go last because you will be fresh in the minds of interviewers. Most agree that you should go first or last, just not in the middle. If you are good enough, it shouldn’t matter where you go, but might as well give yourself the best chance.

(3) When teaching – The stuff you say at the start will be remembered and the stuff you say at the end will be remembered. So make sure to have a memorable introduction where you hook the audience, and then a good summary at the end of what you want them to take away.

When It Just Doesn’t Matter!

We will end this post with examples of when using LIFO or FIFO doesn’t matter at all:

The Villages – The Villages is the largest gated retirement community in the USA. And according to an article in the NY Post, it doesn’t matter if you go in first or last, there is a chance you may come out with an STD…or maybe not. Whatever the case, sounds like a fun place to be a senior!

Medical school – Whether you graduate first or last it doesn’t matter, they still call you ‘doctor’.

The DMV – Because no matter if you go in first or last, you never come out!

Until next time remember…to make life easier…sometimes it’s best to go first, sometimes it’s best to go last, sometimes either is ok.

And if you are a retiree living in Orlando, are studying to be an MD or are heading to the DMV – it just doesn’t matter!

As always…PYMFP!

Rick

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2 Replies to “How to Make Life Easier With These 2 Accounting Methods”

Dave Savadge says:

May 14, 2018 at 11:56 am

Hi Rick

Your FIFO and LIFO descriptions are absolutely correct. I even learned some of these techniques, such as laundry stacking and food storage, from my mother way back when the Pope was still Italian. Sorry, but I cannot relate to your waiting in line scenario, as I do not under any circumstance do Starbucks. However, after years of standing in line at the grocery checkout, I have formulated a theory on how to decide which line to use so that you are checked out faster. It seems to be the best choice most of the time. If you are only purchasing a few items, the so-called Express line may not be the quickest. I have also developed theories on crowd dynamics and traffic flow, both of which work for me, but I won’t bore you with the details.

But I always use the ATM, and any toll booth lane that says “exact change only”. An interesting observation – in a LIFO scenario, Item 1 will never be used and will slowly turn into dust and disappear due to mold, mildew, and rot.

1. Rick, Bri and Howie says:
  
  May 14, 2018 at 1:13 pm
  
  Thanks for the comments Dave! I learned the same things from my Grandma re: laundry stacking and food storage from my Grandma as well, and yes – the Pope was still Italian! It’s amazing how people with no formal education, speaking of my Grandma, used many of these techniques so well…Be good! Rick