Sure, it can be nice to be independently wealthy and not have to worry about pinching a dime here or there. But how many of us are really capable of ignoring a lot of things? It’s extra cash to put into an emergency fund, pay off credit cards, add to retirement, or just splurge elsewhere.
Many money saving tips, tricks and tips are readily available. Although most of them are excellent, not all of them apply to all situations. Here are five ways people think they save money, but usually don’t.
Discounted annual subscriptions are usually cheaper than paying monthly. But when you put things into perspective, it could cost you more.
For example, the Amazon Prime subscription costs $14.99 per month. But the annual subscription, currently priced at $139, will save $40.
But do you use Amazon Prime every month?
According to Groupe Diffusion, 79% of prime subscribers subscribe to free delivery. If you’ve been using Prime benefits for less than nine months, you’re already losing money with an annual subscription.
The products on the Amazon market are relatively expensive. Rachana Shakya, a small business owner and seller on Amazon, says that “it’s almost impossible to break even if your profit margins are less than 300% on the platform. Consumers also pay the high selling costs of ‘Amazon’. Consumers lose money if they don’t shop around.
Another scenario where this conventional money-saving trick won’t work is gym memberships. According to finder.com, Americans spend $1.3 billion on unused gym memberships. Those unsure if they’ll stay motivated on their New Year’s resolution to get in shape shouldn’t sign up for a long-term contract.
Warehouse Club Membership
Warehouse club membership is a paid perk for shoppers that helps them save money buying in bulk. The American warehouse club and supercenter is a billion dollar industry. According to Statistica, it generates $40 billion in monthly retail sales. Costco and Sam’s Club are leaders in this area.
Buying in bulk and the club’s product line saves money, but is it essential to buy in volume? Or are we just buying them for the discount?
Getting more for less is good when needed, otherwise they will lose value. Data suggests that 80% of Americans throw away consumable food due to misinterpretation of expiration labels. Chances are we are buying more than we can consume and contributing to spoilage.
Warehouse clubs have different membership levels ranging from $45 to $120. Executive membership is paid for with points and cash back. But are you shopping enough to earn points?
For a $120 subscription, you need to spend $6,000 to cover the costs. While you can easily spend $6,000 a year, spending $500 on a warehouse every month doesn’t apply to everyone. And the Buyers Club is not your everyday shopping spot. Unlike local grocery stores, you cannot find all the items you need in the warehouse club.
Use of cash instead of credit cards
If you ever tune into Dave Ramsey’s show, you’ll hear it a million times about why he prefers cash for all purchases and how credit cards will drive us crazy.
But are credit cards the culprit of the financial crisis?
Saving money with cash purchases is a method of forced savings by limiting access to cash. It may work in some cases, but the best way to save money is to be intentional.
Cash handling is inefficient and impractical. Changes after purchase are cumbersome and easy to lose. Unlike credit cards, paper money is not secure. If you lose it, you can’t get it back. You also lose cash rewards, fraud protection, and some of the benefits offered by credit cards.
You will have an online record of all expenses for expense tracking and financial planning with a credit card. You can make contactless transactions online and in-store. It is also beneficial when traveling.
Buying a home is a major long-term expense. The mortgage is generally for a term of 15 to 30 years. Therefore, everyone wants to save money when possible. Home mortgage refinancing helps you save money by reducing loan terms or monthly premiums. However, depending on the refinance contract, it may not make any difference or you may even lose money.
Refinancing, like any home loan, comes with a closing cost. It is usually 3% to 6% of the loan amount to cover loan origination, underwriting and administration costs. The closing price is never free, not even for a mortgage refinance with no closing costs. Either he goes into the loan or you have to pay up front. The closing cost could be large enough to absorb all the savings depending on the interest rate deduction.
If the loan extends to the original term, refinancing will cause you to lose money. This will only reduce monthly payments, which is beneficial if you find it difficult to keep up with ongoing payments.
For example, a $300,000 house at 20% down payment with a 5% interest rate on a 30-year loan term costs $223,813.88 in interest alone. The monthly payment on the loan is $1,288.37. You would have paid $109,825.59 in interest over 10 years.
If you were to refinance the remaining loan after ten years at an interest rate of 4.5% for the next 30 years, your monthly premium would drop to $973.96, but you would pay a total of $158,402.96 in interest on the refinanced loan. Therefore, you would pay $268,228.55 (higher than the original interest) with a lower interest rate and extend the term of the loan.
Shopping in Store Vs. Online
Shopping in-store instead of online is one of the rare but recommended personal finance tips. The theory is that going to stores will completely discourage people from going shopping. While online shopping offers easy access from the comfort of your bedroom, the FirstInsight report shows that impulse purchases are more common when shopping in-store.
People tend to spend more in stores. The trend may change in the future with technology, but currently, retail therapy still contributes to more expenses than internet shopping.
One of the major drawbacks of in-store shopping is the missed opportunity to save money on products. Some online products are inexpensive because no in-person customer support team and no construction overhead is required.
Price comparison is easier on online products which help to find cheaper alternatives. You’ll also have access to online discount finder apps like Capital One Shopping and Honey that automatically find and apply discounts without having to clip coupons.
Saving money is usually plain and simple, but sometimes it depends on the buyer’s situation. What may seem like a cost saving could end up becoming less economical. It doesn’t hurt to analyze the money saving tips you receive for a minute or two and ask yourself how they apply to you and if they will actually help you.