One thing saving has in common with the rest of life is that opportunities are always changing. Economic conditions, companies’ offers and policies, tax laws, and personal financial situations are not static. As a result, the best ways to save today might not be the best ways to save tomorrow. The best savers don’t say, “I always shopped at this discount store and put my money in this savings account, so I’ll keep doing it that way.” That discount store may now have higher prices than its competitors and the savings account may have lower interest rates.
Changing financial circumstances force savers to keep on their toes. Just when you think you have found the best ways to save money, times change and you have to start shopping around again if you want to keep saving money. So, as you continue to search for new saving opportunities, how do you know when you have found a good deal? It requires some strong analytical thinking skills.
First, and perhaps most obviously, you have to do some math. For product purchases, calculate what the per-unit cost is or how much extra you are paying for additional features on higher-tier models of appliances and electronics. Consider how long you expect a purchase to last and figure out how much it will cost you per hour, day, week, or year compared to how much a similar product would cost. Alternatively, think about how many hours you would have to work to buy the item you are considering. Once you do the math, ask “Is it worth it?”
Beyond basic math, every purchase or saving opportunity offers additional factors to consider. To know if you really have a good deal, you have to think through all the factors and how they apply to your own circumstances. If, for example, you have some money to invest and are trying to choose between a CD and a mutual fund, you have to compare the features of both. With a CD, you can know for sure how much interest you will make, but the interest might be less than what you would make on the mutual fund. With a mutual fund, you would be able to take out the money any time you wanted it, but you might wind up taking a loss.
Do you expect to need the money before the CD matures? The answer to that question will probably change depending on what is going on in your life, so a CD might be the best choice one time and a mutual fund the next. You have to consider your choices each time you are ready to invest. Then, once you decide on one type of investment over the other, you still have to evaluate which mutual fund or which CD is best. Just as it isn’t always the same for your entire life, the “best deal” isn’t always the same for one person as it is for another, so you have to think it through yourself instead of depending completely on the advice of others.
You also have consequences, opportunity costs, and “what ifs” to consider. Imagine spotting a great, short-time rebate offer on a product you wanted to buy in a year or so, when you expect to have more money available to spend — say a sewing machine. If you buy the machine on rebate, you will spend less than you would have spent when you planned to buy it next year. However, if the machine isn’t yet in your budget, you might have to give up the opportunity to buy something else now — say a month’s worth of weekly date nights with your spouse. Is it worth the future savings to adjust your budget now?
Add potential consequences to your consideration — you would have to spend more than the cost of the machine to buy sewing supplies and fabric, and your marriage may suffer from lack of time away from the kids. In this case, some consequences would be beneficial, too — if you had a sewing machine, you could save money by making and mending your own clothes, or could even make money by sewing something to sell. But then, what if you don’t get the rebate back? What if a better rebate offer is available next year? What if you discover you hate to sew?
Okay, so I’m getting a little carried away, and you would never obsess so much over the purchase of a sewing machine, but my point is you need to take into consideration multiple factors beyond simple price when you are figuring out whether you are getting a good deal. You even have to consider the time and money you will spend in comparing deals. (Is it worthwhile to spend money on gas to do your grocery shopping at several stores in order to buy the specials at each one? Even that answer may change from time to time and from person to person.)
Of course, the basic dollar amount involved often is the biggest factor. Look at the bottom line: how much will this purchase cost me or how much will this action save me? If something is worth more to you than the money you would have to pay for it, or savings worth more than the time and work you must expend, you probably have found a good deal — maybe not the best deal, but a good one. Take advantage of the opportunity and enjoy the savings until circumstances change and you learn that you can save more by doing something a different way.
Image courtesy of Bob.Fornal