While watching the train wreck that is “Extreme Couponing” the other day, I was struck by how so many of these people seemed to have become confused about the difference between saving money and not spending money. One woman was claiming that she’d saved $40,000 on her family’s grocery bill in one year. But would she have really spent $40,000 on groceries in the normal course of events? Probably not. Even if a family spends $1,000 per month on groceries that’s still only $12,000 per year. At $2,000 (and that’s some serious grocery buying), it’s still only $24,000 per year. Very few, if any, households will spend $40,000 per year on groceries.
What this woman really meant to say is that she got over $40,000 worth of products for just a few thousand dollars. In her mind she’d saved that forty-thousand dollars because she hadn’t paid the full retail cost of the items. But the question that remains is: How much money did she spend unnecessarily to “save” that $40K? How many products did she buy that she would not have bought normally? How much money did she blow buying huge quantities of things that will expire and probably be wasted when much smaller quantities would have served her just as well?
I see this a lot. People book expensive vacations but get a discount and claim they saved $2,000. But did they really save $2,000, or did they spend $3,000 for the part of the trip that wasn’t discounted? People buy $200 worth of things on clearance at Target for $100 and claim to have saved $100. But did they save $100, or did they spend $100 on stuff they didn’t really need? When you save money but are still spending, you’re not really saving money. You’re still spending money, albeit less money than you wold have to buy these things at full retail.
The only way this sort of saving works is if four criteria are present:
You really need and will use the items
If the item is something you need (or want) and will use, then your savings might be legitimate. You do want to get the items you use for the best price you can. You just don’t want to convince yourself that you’re saving money when the stuff you’re buying isn’t anything you will use.
You can use it before it goes bad/out of style, etc
If you can use the item before it expires, goes out of style, no longer fits, or in some other way becomes unusable, then your savings might be legitimate. However, if the stuff will expire before you can use it you’re not saving money, you’re wasting money. Having a home full of stuff that you “saved” thousands of dollars on is worthless if half of it will go into the trash can when it goes bad or out of style.
It was something you were going to buy, anyway
If you were already planning to go on vacation, saving $2,000 is a great deal. But if you took the trip just because of the savings, maybe it wasn’t such a great deal. That outfit bought at 50% off is a great deal if you were in the market for an outfit. But if you only bought it because it was on sale, you didn’t save much. If you’re looking for something already and come across a deal, you might be saving money. Buying something just because of a sale isn’t saving.
You considered less expensive alternatives
If you were planning to vacation and only spend $2,000 but then you found the deal that ended up costing you $3,000, you went over budget. If the food you buy is name brand and still more expensive than store brands (and you don’t mind the store brands), you’ve saved money, but not as much as you could have. You save money when you buy the least expensive of all of the acceptable alternatives. If you would have been perfectly happy with the cheaper vacation, food, or clothes, the deal on the more expensive item isn’t really a deal.
There is a big difference between saving money and simply not spending money. Saving money usually happens in conjunction with a spending activity. Yes, it’s great to pay the lowest price you can on items you need, but you don’t want to spend money just to save money. You need to be conscious of what you’re really doing with your money and stop deluding yourself that you’re saving when you’re spending.
The best way to save money is to not spend it in the first place. Don’t buy things you don’t need, can’t use, or don’t have space for. Don’t buy things that aren’t in your budget. Don’t give in to impulses to take vacations you haven’t planned, buy clothes you don’t need, or food you won’t eat just because there’s a deal. Put that money in a bank account and then you’ll really be saving money.