Monday, December 03, 2007

2 Ways to Save that Shouldn't Work

Here's two ways to save that are counterintuitive. At first glance it seems like they'll cost you more money, but in the end they end up helping to build your savings:

  1. Spend part of your windfalls. We've all heard that we're supposed to immediately put into savings any irregular or unexpected income such as bonuses. The problem is that if our cash "diet" is too strict, we inevitably end up cheating anyway. We end up giving in and getting that flat panel TV and then fall off the bandwagon and lose our savings discipline. If we give ourselves permission to spend a small part of windfalls we get to immediately enjoy part of the fruits of our labor and yet not feel deprived in saving the bulk of it. It can also give us more incentive to earn extra income, since the feedback is more immediate than something like retirement 30 years down the road.
  2. Don't continually shop for the best deals at the mall,, etc. I have a lot of friends who are great at finding the best bargains on the latest computer, car, electronic gadget, etc. The problem is that even if you're saving $300 on a new $1000 computer, you're still spending $700 on something that you bought mainly because it was a 'great deal.' I'm not saying that you shouldn't seek out a good deal when you really 'need' something. The problem is that continuously shopping for good deals can fool us into thinking that we're saving when we're really just spending less (which is a big difference). The other problem is that the more we shop, the more we want things. It's insidious and something we can't help, so it's best to avoid shopping if we're not looking for something that we really need.