In our eagerness to save money on everyday expenses, we inadvertently lead ourselves into false economies that punish us financially in the long run.
We all like to save money and we all like a good bargain. Contrary to popular belief, however, the two are not completely aligned.
What Is a False Economy?
A false economy is an action that saves us money at the time but ends up costing us more money down the line.
False economies are quite deceptive because, though it feels like you’re making savings at the time, you end up losing money without even realizing! In order to keep good control over your finances, it’s not enough to maintain keep a good budget (although it’s not a bad place to start). It’s crucial that consumers recognize the difference between a good saving and a transaction that leads to a false economy.
Ask yourself, “Is this really a good bargain, or simply some immediate gratification that will end up costing me later?”
Some are easy to spot, while others are a bit more deceptive. To help you out, we’ve listed five examples of the most common types of false economies below.
1. Buying Perishables in Bulk
Buying things like washing-up liquid, laundry detergent, and tinned food in bulk is a great way to save on your shopping. These are things that you will definitely need at some point, so heading to Costco to stock up is a smart idea.
This is not the case with perishable goods however. Avoid the temptation of buying products like fruit or meat in bulk unless you’re definitely going to use them —perhaps if you have a party coming up in the next few days.
Most of the time, we see deals on these goods and think that we will make ourselves use them up for the sake of the savings. More often than not, this food sits around for a week, becomes inedible, and gets thrown out.
The same goes for those ‘3 for 2’ deals. We fall for these tricks time and time again, buying products in bulk when we really just wanted one.
2. Paying the Minimum off your Credit Cards
This is one of the biggest wastes of money we fall victim to.
It’s extremely tempting to just meet the minimum payment due on your credit card every month. But it’s important to remember that every single penny you don’t pay off contributes to the interest you’ll have to pay on these cards down the line.
Get into a habit of paying off as much as possible each month and you’ll start to see significant savings.
3. Not Purchasing Adequate Insurance
Accidents happen. But if you’re not insured, they can end up costing you an absolute fortune.
Make sure you have all your valuables insured, particularly your car and home. Be extra careful to insure anything that contributes to your income too, like laptops, tools, machines, etc.
It’s important to make sure that your insurance is adequate. This is an area that trips a lot of people up. Companies will sell you bare bone policies that are cheap to pay for up front, but could end up costing you a lot more should you come to making a claim.
And as always, shop around for the best deals. There are plenty of comparison websites that will help you save money on pretty much any insurance policy
4. Picking Price Over Value
It’s easy to think that we’re saving money by simply buying the cheapest products when we’re out shopping. In reality, nothing could be further from the truth.
The cheapest products are usually cheap for a reason – because they are of terrible quality or just plain don’t work.
Try to think of every purchase as an investment and buy items of value. You might think you’re being frugal by buying the cheapest knife set in Wal-Mart, but you’ll probably end up having to replace them in a few months. A decent set might have cost three times as much, but they will last for years.
The same goes for shoes, washing machines, paint, vacuum cleaners… anything you want to last you for a while!
Before making a big purchase, spend a few minutes going over some product reviews and purchase the quality products that will last. The Wirecutter and The Sweethome are both great review sites for finding quality electronics and homeware.
5. Not Setting Up Your Pension
This isn’t to say that most people don’t set up a pension plan at all. But unfortunately, most people don’t do so until it’s too late.
When you’re in your twenties, the last thing you’ll be thinking about is retiring (except on the odd Monday morning). But this is exactly the age you should be thinking about setting up your retirement plan. Thanks to the power of compound interest, the earlier you start putting money away to retire, the more you’ll end up having by the time you hit 65.
If you only start putting money aside in your late thirties or forties, the amount of savings you’ll have accrued will be significantly less than if you had started a decade before.
Money might be tight when you’re young, and it might seem wasteful to start siphoning funds into savings for forty years down the line, but you’re unwittingly entering into one of the most far-reaching false economies if you don’t.
Believe us, your future self will thank you!