How dumb people save

May 12 2 Comments latest by Renee

Of all the auto-related economy moves, premium vs regular gas is one of the least important!
–Jonathan S.

A little while ago, Jonathan sent me a long email telling me why he disagreed with me. We went back and forth, but one his points really stuck with me–saving on little things may help you feel better, but it often does nothing to really grow your money. So today, I wrote a little story about saving. Do you think I should consider a career in fiction?

———-

This is a story about a dumb person. Let’s call him Ben.

Ben likes to think that he’s fairly frugal and, in fact, he is. He always comparison shops at the grocery store, he uses coupons, and he doesn’t buy Cokes when he goes out to eat. He also…

-Negotiated with his cellphone company to save $10/month on his plan
-Stopped eating out twice a week, saving $20/week
-Bought pens in bulk, saving $0.20 on each one

So far, so good.

The problem is that Ben bought a new couch for his apartment last week. The basic model was $500 but he thought the Premiere edition would look cool, so he sprung for it for $1500. It was so pretty and soft.

What’s wrong? He liked it, after all, so why not? Now, I’m not saying you shouldn’t spend on what you love (what else is money for?). In fact, I’ve written about this before: Irrational but good things to buy.

The thing is that Ben fancies himself a really frugal guy. If you asked him if his frugal actions have saved him money this year (clipping coupons, comparison shopping, etc), he’d vehemently say yes. Ben doesn’t realize one key fact: He penny-pinched on small items but spent a lot for the big item, wiping out all his savings for the year.

If he thought carefully about his purchase and decided it was worth it, great–all the power to him. But we rarely do this. We treat our purchase decisions in silos, not linking one purchase to another. And because I made Ben up, I know he did exactly this.

Think about it!

*Sidenote: For certain big purchases, I actually often prefer to spend a little more to get it right. For example, with a digital camera, car, or computer, I find it’s often cheaper to get the right item that won’t break down/wear out/etc instead of a cheaper item. For example, one of my friends is starting a company and got the best lawyer in the area–for $480.00/hour. He thinks of it as an investment that it’s worth to pay more for. In these cases, where I’m buying something big, I’m careful in deciding whether it’s worth it to pay more.

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Posted May 12, 2005 under Saving

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Hybrid cars don’t save you money. Do the math!

More thinking about why you want to be rich