Law #15: Avoid this bad money saving advice
The Law
Not all money-saving advice is financially sound. Discerning good from bad advice and figuring out how to apply it to your personal situation is a key to financial success and power. Learn the types of tips to avoid so you don’t throw a wrench into your money-saving game.
Your Keys to Power
Buying cheap things that aren’t of suitable quality. Do the math. If the item you’ve been buying falls apart quickly, and you only get a short amount of usage, constantly replacing that item may cost more in the long run than investing in a higher quality item. Think of buying the cheapest set of pans from your local department store. The most inexpensive (and lowest quality) set may cost about $40. If the handles start to fall off, the Teflon scrapes from the pan, and they’re headed towards the dumpster in 3 to 6 months, did you really save money? Spending $40 plus a trip to the department store two to three times a year, not even considering the health implications of ingesting crap that attaches to your food from crappy pans, will add up over time. It would have been cheaper to invest $200 in a higher quality set that lasts 8 to 10 years.
Buying things just because you have a coupon or the item is on sale. Having a coupon isn’t the holy grail of needing to buy something. Some people really enjoy the thrill of spending less than the sticker price on something. But just spending less than the sticker price doesn’t equal saving money. If you went to the store intending to buy bread, a T-shirt, and rice, but you walk out of the store with those items plus a new checkerboard and chess combo set because you had a $2 off coupon, that experience did not save you $2. All that experience did was cause you to spend more money than you planned to spend. Even though you paid $2 less on an item than you would have without a coupon, that is not the same as saving money. The same concept applies to things on sale.
Holding the money close to know it’s yours. Some people crave having cash at their fingertips, even the money they’re saving. Even those who have gained control over spending and become better at saving still have further steps to master—putting savings into the best accounts. Holding all the money you save in a checking account or savings account may not be the best financial strategy. And sometimes, the money you can save per month may serve you better by being split between a liquid savings account and a less liquid 401(k) or another type of retirement account. Future issues will dig into comprehensive saving strategies, but for now, just know that there is an artful science to diversifying your savings that goes far beyond just spending less than you earn. At the very least, start there because you can’t save anything anywhere if you don’t first figure out how to spend less than you earn.
Super high insurance deductibles. Sure, often, the higher your deductible, the lower the premium. This concept applies to health, car, renters, homeowners, and other insurances. While each person‘s insurance needs are unique to their health status and assets, always opting for high deductibles to save money on premiums isn’t advisable. Choosing the right type of deductible is much more nuanced than striving to get to the lowest cost premium. Think through how paying a high deductible would impact your finances and weigh that against the risk of needing to file an insurance claim.
DIY. Not everyone is cut out for DIY projects, and even for those who are super handy, not every project is suitable for DIY. Be careful to take on only DIY projects that you’re 100% confident in and capable of performing, preferably ones where you have some experience and where the cost of failure isn’t too great. Suppose you broke an expensive item and want to test your hand at a DIY repair. That’s different than taking an entire kitchen remodel into your own hands if you have no experience in construction work. Taking on too aggressive of a DIY project could lead to a situation where you have to spend a lot more to get it fixed than it would’ve cost to outsource the project to a professional in the first place. Thinking through your projects also allows you to re-evaluate whether you really need to engage in the project right now.
Buying in bulk as a policy. Buying things in bulk can reduce your per unit costs. Where buying in bulk can go sideways is in your storage and consumption. You've wasted money if you purchase items and store them inappropriately such that they are rendered unusable, or they expire and become ineffective because you don’t consume them fast enough. Suddenly, your bulk buying strategy flips upside down, and you’ve wasted money.
Skipping doctor and dentist visits. Poor health is one of the most expensive, financially terrifying aspects of life if you end up with certain types of chronic illnesses. Skipping regular preventive visits is a mistake that could be extremely costly in the future. The key to maintaining health, safeguarding your finances, and avoiding expensive life complications from chronic illnesses starts with regular doctor and dentist visits. Don’t skip these to save a dollar today when that may cost you 1,000-fold or more tomorrow.
Practical Application
Practice delayed gratification. When you see things on sale or run into items that you have a great coupon for, if you didn't come to the store planning to purchase those items, avoid the instant gratification of picking them up right away. Take a pause and know that you can often always circle back if the item is something you really need. Putting even a brief delay between seeing something and purchasing it will give your brain the time to do what it naturally wants to do when you give it time—think through things rationally rather than act on impulse.
Make lists. When shopping, make a list. It turns out there is an important benefit to that thing you probably saw your parents doing decades ago. Heading to the store with a specific list of the things you plan to purchase, even if you aren’t particularly strapped for cash, will help you to stay focused on the specific things you need to buy.
Track your consumption to buy in bulk smartly. Buying bulk without understanding how you and your household use items is unwise. If you know you typically go through a pound of flour every two weeks, it’s easy to purchase in bulk and know you’ll use it within a reasonable timeframe. Also, remember that buying in bulk is not just about perishability but also about how much space you have to store things comfortably without your home becoming a clustered mess. For many, living in messiness wreaks havoc on mental health and probably isn't worth saving a buck or two.
Do your research. When investing in higher quality items that may last longer than super cheap purchases, learn how to do your research. Read reviews to see how long people say things last. Look also for guarantees. For instance, some items have a lifetime guarantee or a promise to replace if items start malfunctioning in a certain amount of time. In the absence of those types of guarantees, look for manufacturer warranties. The more extended the manufacturer warranty, the more confidence you can have in the item's functionality over that period. If all else fails and you end up with a low-quality item that breaks quickly, avoid entering a cycle of re-purchasing the same low-quality item. Do what you can to save money and invest in a high-quality item that keeps you from having to replace it constantly.
Get health insurance and learn about any assistance programs you qualify for if you need them. Insurance will help you avoid skipping important medical visits. Also, learning about local assistance programs will help you afford visits that could’ve otherwise dented your cash reserves. Commit to looking into these programs without shame and pursue them if you qualify. Accepting assistance now doesn’t mean that you’ll always have to, but there is no shame even if you always have to. Do what you can and must to maintain your health and avoid harsh financial pitfalls in the future. Pay extra special attention to preventive measures to keep your teeth healthy. Dental insurance involves significant expenses if you require major procedures like root canals and crowns. Take proper precautions to avoid needing these costly procedures.
Get help with investing in diversifying savings. If you struggle to figure out where to place your hard-earned savings, seek help from a qualified financial advisor. Do your research well and ensure you understand the investment options before committing.
Get help with finding the right insurance for your needs. If understanding insurance feels difficult, find an insurance advisor to help you navigate the sometimes confusing insurance lingo of deductibles, copayments, coinsurance, and premiums.
Authority
“Being a smart shopper is the first step to getting rich.” - Mark Cuban
“The bitterness of poor quality remains long after the sweetness of low price is forgotten.” - Benjamin Franklin
“Save money on the big, boring stuff so that you have something left over for life’s little pleasures.” - Elisabeth Leamy
“He who buys what he does not need, steals from himself.” - Swedish Proverb
“Deprive yourself on nothing necessary for your comfort, but live in an honorable simplicity and frugality.” - John McDonough
“He who will not economize will have to agonize.” - Confucius
“By sowing frugality we reap liberty, a golden harvest.” - Agesilaus
“I believe that thrift is essential to well-ordered living.” - John D. Rockefeller
“A man who both spends and saves money is the happiest man, because he has both enjoyments.” - Samuel Johnson
“Poverty is uncomfortable; but nine times out of ten the best thing that can happen to a young man is to be tossed overboard and compelled to sink or swim.” - James A. Garfield
“The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.” - T.T. Munger
“Do not save what is left after spending, but spend what is left after saving.” - Warren Buffett
“A budget is telling your money where to go instead of wondering where it went.” - John C. Maxwell
“You must gain control over your money or the lack of it will forever control you.” - Dave Ramsey
“Never spend your money before you have it.” - Thomas Jefferson
“Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.” - James W. Frick
Our Vote
I have long been someone who invests in quality over quantity. I'm comfortable delaying gratification long enough to get the thing I need instead of just what I want at the moment. Sometimes the thing I really need costs more than what I can afford. When that happens, I don't cheap out and pick up something of lower quality that won't last for a while. I also don't use credit or credit cards unwisely to buy things sooner than I can afford. Instead, I avoid the pitfalls of instant gratification and comfortably plan purchases in a way that allows me to maximize quality, comfort, and financial security. I have learned how vital maintaining medical visits is to a life of long-term health, and now more than ever, I focus on those important appointments for myself and my aging parents.
Reversal
Be careful never to reverse this law. Engaging in the options we recommend avoiding could put you into a vicious cycle of constantly putting out more money in the long run, even when you think you’re being frugal. Save wisely, but not at all costs. Know when to invest in quality things that protect you and your financial future.