Seems like everyone has an opinion about money – how you should spend it, how you should invest it, and how you should save it. But as someone who has made a career out of helping folks pay off debt and get their finances back on track, I can tell you that not all financial advice is created equally. In fact, a lot of commonly repeated money advice may actually lead to more spending than saving!
I thought I’d shed some light on seven commonly shared savings tips that can end up costing money in the long run. How many of these have you heard before? How many of these have you tried?
- Spending money to “save” money. It’s all too easy to use discounts and sale prices to justify unnecessary purchases. But if you’re serious about saving money, it shouldn’t matter if something is on sale or not. If you weren’t planning to buy it before it went on sale, and if you don’t need it or probably wouldn’t pay full price for it, you shouldn’t buy it. Same goes for group-buying or local discount sites (think Groupon, etc.): If you have to buy in to save cash, you’re not getting a deal.
- Leasing a car. Like renting to own, leasing a car is one of those things that sounds good, savings-wise – until you think it through. Lease payments are often lower than a typical car payment, which is appealing to folks who are in the market for a car – but don’t want to blow their budget on a car payment. But those super-low monthly payments usually go hand-in-hand with super-low mileage limits (think 10,000 or 15,000 miles in 2-3 years). If you go over that mileage limit, you’re looking at a charge of around 25 cents per mile –which can add up quickly. If you’re not careful, you’ll end up paying hundreds – or even thousands – extra when your lease is up.
- Opening a store card to get a discount. No doubt you’ve heard this one before: “Would you like to open a store credit card and save XX percent on your purchase today?” Most retailers – from clothing boutiques to big-box stores offer a specially branded store credit card. And most retailers offer some sort of discount, typically between 15 to 20 percent, when you open a new account. This can be tempting – especially if you’re making a large purchase. But it might be smarter to wait for a sale or look for a coupon or use a regular credit card that offers cash back or rewards of some kind (provided that you pay your balance in full at the end of the billing cycle, of course!). Store cards have notoriously high interest rates compared to regular credit cards, which means that if you don’t pay off your purchase immediately, that 15 or 20 percent discount basically becomes irrelevant. Store cards also tend to have very low limits, which means they don’t really contribute to your pool of available credit. My advice: Stay away. That one-time discount isn’t worth it in the long run.
- Road-tripping all over town to save a few bucks. There’s nothing wrong with driving a little out of your way to score a really great deal. If the grocery store across town is offering super-quadruple coupon day and buy-one-get-one everything, by all means, drive the extra half hour and stock up! But the way I see it, there is something wrong with spending an entire day going to six different stores to save a dollar here or fifty cents there. The gas you’ll use will probably eat up any small savings you gain – and really, wouldn’t you rather spend your valuable time doing something else?
- Misusing a balance transfer. When used the right way, a credit card balance transfer can help you save money. Most balance transfer offers come with super-low (or even zero) percent introductory APRs, which means that if you can pay down your debt within the introductory period, you’re saving hundreds of dollars in interest payments. Sounds great, right? Well, it is. But there’s a reason that I included balance transfers on this list: If you don’t pay down your debt within the introductory period, your interest rate will skyrocket and you’ll end up back where you started. What’s more, most credit card lenders charge some sort of fee for balance transfers (it’s usually a percentage of the amount you transfer). So before you transfer, you’ll need to make extra sure that the numbers work in your favor and that you can pay down your debt in time.
- Joining a bulk buying club. I’ve mentioned before that bulk buying is a common money waster in disguise, especially when it comes to food items. If your family doesn’t use that industrial-sized tub of peanut butter or gallon jug of salsa in time, you’re wasting money — and food! What’s more, most warehouse-style bulk-buying places require you buy a membership just for shopping there (and memberships aren’t dirt-cheap: you’ll pay around $50 for a basic membership at most places). Unless you have a very large family or you are going in half and splitting your bulk purchases with a friend, you can probably skip the membership and use that $50 to pad your emergency fund.
- Buying on price alone. Sometimes, the cheapest option is just fine. I find that, when it comes to small consumables (think dish soap, plastic baggies, paper products), that the cheapie store brand is just as good as the big-name item. But when it comes to purchases that you plan on using for years to come – things like furniture or appliances, and even shoes or winter coats – it pays to look beyond the price tag. For example, a dirt-cheap mattress may be easy on the wallet, but if it wears out in a year or if you don’t sleep comfortably on it, it’s worth paying a little more. I’m not saying you have to run out and buy the most expensive thing in the store – but do a little research first. Before you buy, make sure you’re looking at the whole picture, not just price.
Here’s one money tip that won’t cost a penny: If you need advice about debt, budgeting, or responsible credit card use, we’ve got you covered. Contact the Debt Guru team today for a free debt consultation.