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Saving Money by Playing Mind Games

Don’t you love the idea of saving money? I think we all like the thought of putting some money aside for future needs by being cautious in how we spend. But sometimes we can talk ourself into thinking we’re saving when we are actually costing ourself more money in the long term.

Not eating for a month would, technically, save you a lot of money. So would no ignoring the utility bills and not paying the mortgage or rent.  Of course, it’s easy to see why those are really bad ideas. You might save money with them for a bit, but there’s no way to you could ignore the long term financial harm.

In other cases, however, there are ideas that seem like they’d be good ways to cut your costs, but in practice don’t actually save you money. The challenge is identifying which ones are good ways to save a few dollars and which are fundamentally flawed.

If your employer offers to match money in a qualified savings plan such as a 401K or 403B and you decide to save money because you don’t feel you can afford to have money automatically deducted from your regular paycheck, you are actually losing money in the long run.

If your employer will contribute  $.50 for every $1.00 you contribute, up to a maximum percent, take advantage of every penny they will match. Because this is a qualified investment—an IRA or 401(k) or 403(b) your contribution is not counted as part of your income for tax purposes.

Let’s say your gross paycheck is $2,000, and (to make the math simple for this example) you are contributing 10%. You’ll contribute $200 to the qualified plan, so your taxable income will only be $1,800. Plus with your employer match at $0.50 on each $1.00 up to 6%, you have actually saved more than $200. This is too good to pass up so don’t think you are saving money by ignoring an employer match savings plan.

Having no health insurance at all will save you money in the short term, but sooner or later you are going to have a medical issue. If you have to pay for it yourself, it may be very expensive. Younger people—typically those under the age of 30 can buy “catastrophic coverage.” It pays your medical bills, but (other than for a few very basic services) only kicks in should you have a major, expensive health issue.

The premiums are low, but the expenses that aren’t covered could be way more than you would have paid for a normal health policy. For 2020, the deductible for all catastrophic plans is $8,150. After you spend that much, your insurance company pays for all covered services, with copayment or coinsurance. That’s a bet worth taking only if you have an extra $8,150 available in case you actually get sick.

Buying low-quality clothing or shoes can actually cost more money in the long term. Buying the cheapest clothes you can find, may mean the clothes wear out in 6 or 8 months. Replacing your wardrobe every 6 months can be much more expensive than buying quality clothes on sale, with coupons, or shopping at a consignment store.

While buying cheap clothes sounds like it makes some sense, quality made clothes that cost only a little more can last for several years. In the long run cheap clothes are just not designed to last. It can end up being an expensive way to buy your clothes!

Skimping on oil changes and other routine maintenance on your vehicle may keep a few bucks in your pocket for a while, but eventually neglecting those maintenance expenses will almost certainly result in a major breakdown. And that can be very expensive—much more than the cost of the routine maintenance that you skipped.

Not having car insurance is a bad idea if you ever have an accident. It boggles the mind, but some states have no requirement that you must purchase car insurance. That may save money in the short term. But when you do have a major accident the decision not to purchase car insurance could bankrupt you.

Not only does car insurance cover your car, it also covers the expenses that you cause to the other driver and his passengers (such as medical expenses) if you are at fault for the accident. Not having insurance will probably result in a law suit which can be very expensive.

Spending money for something on sale doesn’t mean that you saved money—you just didn’t spend quite as much! Buying something that normally costs $100, but it’s on sale for $50 doesn’t mean that you saved $50. It just means that you avoided spending $50. If you really want to say that you “saved $50” then take the $50 that you didn’t spend and put it in your savings or retirement account.

Many people will buy lots of things in bulk quantities, which is great for non-perishable items (such as the infamous toilet paper shortage of 2020.) It’s not so good for perishable items. Even things like cereals, pastries and over the counter medicines will go stale or be difficult to use beyond the expiry date. Buying in bulk is only good if you don’t waste the product purchased.

Make sure that you calculate the total price when you are buying something. Many items are sold at reduced prices because what you are getting is not usable until you add required parts that must be purchased separately. If you were buying a used car that had no tires, you would have to factor in the purchase price of the tires in order to calculate the total cost. Maybe buying a car without the tires is a good deal, but maybe not. You have to do the math and make fact based decisions.

Instead of just looking at the price you pay, be sure to calculate the total cost of anything you purchase.

Sirach 20:12 reads, “There is one who buys much for little, but pays for it seven times over.”

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