Wednesday, June 15, 2011

Saving money by buying smart

“Watch your pennies,” my grandfather used to tell me, “and the dollars will take care of themselves.” The old man was right—there are a zillion ways we waste money, some of them obvious, some of them not-so-obvious, all of them draining pennies from our pockets, pennies that add up.

 Several years ago my husband and I purchased a house that we planned to turn into a rental and when we took possession of it, it was not in the condition it was in when we made our offer. Among many other problems, numerous things were missing and/or broken, so I began making a list of things that would need repairing or replacing, intending to price them at my local home improvement store. When he saw me write down spindles for the toilet paper holders and plants missing from the landscaping, my husband thought I was being petty, but when all the little items on my list added up to nearly $10,000, he took a considerably different view: those little things added up to a sizeable sum.

It is no different when you are shopping: a small amount saved on a multitude of items can add up to some significant savings. Thinking about purchases and buying with your head instead of your heart can help keep your pocket plump. And don’t make the mistake of thinking that people who appear to be affluent don’t need to manage money and therefore can’t give you useful tips…most of the well-heeled people I have known in my life got there through careful money management, not profligacy. Here are just a few ways you can make your money go further:

1. Avoid debt. For most of us, debt to buy a house, debt to buy a car is necessary…but debt beyond that is not. Debt costs you interest and money you pay in interest is money you don’t have for something else…like a savings plan or investment or an education fund for your kids. If you have a credit card either pay it off in full at the end of each month or keep it for emergency use only. And by emergencies, I mean true emergencies like replacing a blown tire or head gasket. It’s five days to payday and you’re out of cigarettes is not an emergency, no matter that if feels like one.

2. Eliminate costly habits. Smoking is one very expensive habit; bottled water is significantly more expensive than water you filter yourself with one of those tap attachments; professional manicures and pedicures should be an occasional treat, not a regular expenditure; designer labels and big name brands are seldom worth the extra cost—know when to spring for the name brands and when to go for the generics (i.e., supportive footwear vs. designer handbag). Little luxuries, indulged in regularly, add up to big bucks: if you spend $5 a day for a Starbuck’s coffee, that’s $25 a week or $1300 over the period of a year: wouldn’t it be better to put the money aside and, at the end of the year, buy that designer bag with actual cash (and not pay credit card interest on it)?

3. Get over the “ick” factor with regards to second hand goods. With the exception of undies, swimwear, and things that go in your mouth, there is nothing wrong with buying second hand. And you can do it without looking like a Goodwill diva by going to consignment shops where the affluent fatten their pocketbooks by selling their gently-used high-end clothing, bags and shoes. Second hand furniture (some of which is called “antiques” or “vintage”) can be attractive and functional as well as reasonably priced. And everybody should know that buying a car brand new is an exercise in financial foolishness: the minute you drive it away from the dealer, you are underwater: the car loses 30% (or more) of its value while your car loan is based on the sticker price (which the car is no longer worth). Beware of buying electrical/electronic goods second hand from private parties as they may be unreliable (and possibly stolen). Better to buy them from a shop where you have some recourse if the product does not perform as expected.

4. Learn to say “no” and mean it. Kids are instinctive manipulators. I once stood in a queue at a drug store behind a woman who had a boy about eight years old with her. Her first mistake was allowing the child to roam the store while she stood in the queue: she should have made him stay with her. Why? Because he came to her carrying a huge toy truck, asking her to buy it for him. She told him “no” and to put it back, which he did…but returned carrying another expensive toy. The queue was long and eventually the firmness of her “no” wavered: she started making excuses “I don’t have that much money with me” she told him at one point. Eventually after he persistently returned to the queue with one toy after another, pleading for her to buy it, she gave in and paid for the toy with her credit card. She had taught him that if he pestered her long enough, he would eventually get what he wanted, even if she had to borrow (and pay interest on) the money to pay for it.

You must learn to say “no” to everyone who wishes to raid your pocketbook for non-essentials, even yourself. That new CD by ReDickLess, your favourite artist…will you live without it? Can you spend the money better elsewhere, like on the electric bill or for gas or to pay down your existing credit card debt? Oh, but it’s on sale! It’s half price! Well, even at half price…could that money be better spent elsewhere? Learn to tell yourself “no!” and make it stick!

5. Don’t buy “premium” unless it really makes a difference. That applies to gasoline, clothing, furnishings, cars, food…virtually anything you spend money on. If you are driving a little Korean econobox, why are you buying premium grade gasoline for it? It’s a car, you can’t reward or bribe it with extra goodies and unless your owner’s manual specifies premium petrol, you are wasting your money buying it. Can you really tell the difference between name-brand and store brand cottage cheese? Will your coworkers wrestle you to the floor and hold you down so they can see if your shirt sports a designer label?

6. Don’t skimp where it counts. Cheap furniture, for example, doesn’t last…not only do trends change frequently, the materials and construction of cheap furniture (especially chip board) do not stand up over time. Better to spend on a sturdy piece of second hand furniture that will last until you want to replace it, not need to replace it because it fell apart. This allows you to save the money you would otherwise spend on repeated replacements of cheap stuff…or spend it on something else. This applies to anything that should have a long life…refrigerators, cars, shoes, leather jackets, etc. Buy the best you can afford, then take good care of it.

My last two cars lasted 15 years each (and out of that 30 year period, I was free of car payments for 25 years!) and my present car is 11 years old (and also free of car payments). You don’t want to drive an old car? Well, would you rather drive an old car (mine is a Mercedes, BTW, bought second hand) and have money in your pocket? Or drive a new car and be broke? There is no reason, aside from vanity, that you need to trade your car in on a new one every two or three years, and every reason to pay it off then keep it for as long as possible. How do you know when to trade it in? When it is out of warranty and the cost of repairs (annualized) is close to the cost of the monthly payments (annualized) on a new car.

7. Don’t rent/lease when you can buy. That applies to everything from washing machines to cars to homes. When you lease a car you pay every month for it, just as if you were buying the car…but at the end of the lease, you have nothing to show for it but a pile of cancelled cheques. You couldn’t qualify for a loan to buy that fancy BMW, you could only qualify for a second hand econobox? Well, if the state of your financial health is more important than your ego, you should have bought the econobox. At least, when the sales contract is finished, you have a car to drive and more money in your pocket. When you rent/lease furnishings, you pay more over the course of your contract than if you had purchased the item(s) new…and many times leased furniture and appliances are anything but new. Renting or leasing your home should be a temporary measure, not a lifestyle. Rent small and in a safe but not trendy area: not only will your rent be lower, you don’t have to buy much stuff to fill a small apartment. The money you save by avoiding large flats in trendy complexes with a built-in dating pool will allow you to put money aside to buy your own place.

Don’t want to buy your own place? You are OK with buying property for other people with your hard-earned cash? Because that it what it comes down to: the money you pay for rent is used by your landlord to pay his mortgage on the property. Once his mortgage is paid, he either invests that money in yet more rental property (my husband and I own five rentals to date) or lives on it. Either way, you are working to increase another person’s wealth, not your own. Property market makes you nervous, all those people getting foreclosed or with underwater mortgages? Well, many of those people getting foreclosed couldn’t truly afford to buy their homes in the first place and ordinarily would have been turned down for mortgages…that is what the “subprime” fiasco was all about. The phrase didn’t mean “sub prime interest rates” it meant subprime loan applicants who were granted loans when they didn’t meet the criteria for creditworthiness. These people got loans they couldn’t afford at higher interest rates than a “prime” applicant would get just so the banks could rake in the interest before the homeowner defaulted, after which time the banks could reclaim the houses and sell them on, taking interest from another sucker.

Underwater mortgages scaring you? Why? It only matters if you want to sell the house…and even then, does it truly matter? What other item do you purchase on the instalment plan that you expect to appreciate rather than depreciate? Seriously…you buy a car for $20,000, what do you expect it to be worth in five years? And why does the fact of your mortgage being underwater bother you if you are not contemplating selling the house? Your car goes through a period of being worth less than you owe on it…a house has traditionally been different, but why does it have to be? Because you can’t get an equity loan? Don’t you think that might be a good thing, since it keeps you out of further debt?

8. Use loyalty cards, coupons, rewards schemes. Check them out carefully before you join and if there is no cost to you and there is even a small reward, go for it…small rewards add up into large savings over time. Worried about privacy concerns? That the supermarket will sell your info to marketing firms? Well, bucko, unless you have managed to drop off the grid, that info is already out there and you’re not making any money (or saving any) as a result of it. Why not get a break on the groceries as compensation? My favourite supermarket has a program that if I use their card, I get a 1% rebate on my purchases which accumulate until I want to convert them into cash (to be used at that market). It may not sound like much, but add up what you spend at the grocery store in a year, then calculate 1% of that: if you spend $100 per week, that is $5200 per year and 1% of that is $52…half a week’s groceries! The local gourmet market has a card that entitles you to discounts on selected merchandise. Yesterday there was a 30% off special of kitchen gadgets, 20% off on kitchen towels, tablecloths, and napkins…but only for card holders. And there was a special on chicken breasts for cardholders. We also belong to a rewards scheme on one of our credit cards: they give a 1% award on all things charged to the card. So, we charge everything we can to the card, from groceries to petrol to clothing to household maintenance services, to generate the largest award possible. Of course, we pay off the credit card in full at the end of every month…and we use the awards points to buy gift cards to…the local warehouse store (where I do our bulk shopping) and the gourmet supermarket! Last month we got enough in vouchers to pay our entire warehouse store monthly purchase (about $150) and three trips to the gourmet supermarket (because I buy most of our fresh fruits, veg, and meats there due to their quality).

9. Whenever possible, buy in bulk. That means buying what you normally would buy in larger quantities when there is a sale. Butter has doubled in price over the last couple of years: when it goes on sale, I buy as much as 10 pounds of butter and put it in the freezer, otherwise, I buy just enough to get to the next shopping day, waiting for the next sale. Anything that you can freeze or that will not spoil if kept at room temperature for a long time is a prime target for bulk buying, but only if you can save money doing it: paper goods such as toilet paper, paper towels and napkins, laundry soap and additives, cleaning products such as floor polish, cleansers, and spray cleaners, white vinegar, dishwasher soap, feminine hygiene products, insecticides, automotive oil, personal grooming products like deodorant, shampoo, bath soap…the list is virtually endless. Make sure you have storage space for what you buy, that the price you are paying worth the investment, and that these are products that won’t languish, unused in the back of the cupboard…who need 10,000 paper plates—but who won’t use 100 rolls of two ply?

10. Use traditional skills. If you don’t know how to sew, learn the basics like sewing on buttons, tacking down zippers and pocket corners, mending a hem, sewing up a split seam. None of these require a sewing machine, they can be accomplished with a needle and thread (available inexpensively at any supermarket). Instead of replacing something that has come unstitched, repair it. Learn basic cooking and cut down on fast food, eating out, take out, and supermarket meals…cooking for yourself is cheaper and healthier. Brown bag your lunch with sandwiches you made yourself or, even better, leftovers from last night’s dinner. Don’t send your clothes out for laundry, do them yourself (go to the laundromat on weeknights between 6 and 8, while everybody else if having dinner and you’ll have your pick of the machines). Do your nails yourself; wax your legs yourself; the smallest things you save money on still can add up to a surprising sum: saving only ten cents a day by doing some things yourself adds up to $36.50 at the end of the year…which may not sound like much, but if you save ten cents a day on ten different things, that’s $365 that can be applied to anything your heart desires, something you otherwise could not have afforded!

My mother used to call my shopping habits “poor people shopping” but I think she missed the point…there are ways to live within your means and get the most “bang for the buck.” Live for yourself, not the nebulous “others,” live within your means so that you aren’t wasting precious resources on mountains of interest, and use the many means available of stretching your dollar. You’ll have less stress, more money, and a happier life.

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