Beware of ‘saving’ money by spending it

By | 24th April 2017

Beware of 'saving' by spending

If you buy something with a retail price of £500 for £300, have you saved £200? Or actually just spent £300 that you weren’t planning to?

When making purchases it is important to consider three points:

1) Is the retail price genuine? If you have been considering a purchase for some time then you will know what the actual market value is, and also any regular discounts that are available.

2) Is it something you were actually planning to buy? If it is something that will be of limited use, then even at a large discount it may not be worthwhile.

3) What are the ongoing costs? While some items might have a low purchase cost, thinking you are getting a bargain, over time the ongoing costs can erode that initial saving.

When it comes to retail price, one of the online retailers I use has the habit of always showing a comparison retail price for their items. While the items they produce are of good quality, the comparison price is something I just ignore as they have never sold their own products at that price.

It is important to consider running costs. For example, perhaps there is a drink machine on special offer for half price – but if that machine can only use expensive capsules then the benefit will be lost over time.

Similarly, you can also apply the principles to pre-owned items such as cars too – you can indeed purchase a £100,000 list price car over ten years old for perhaps £5,000 (an apparent 95% discount, but did the first owner actually pay the full list price?) However your running costs are likely to far exceed the purchase price many times over, making it again less of a bargain. You also have to consider whether the benefits outweigh those of a cheaper to run, more reliable car that meets all your practical needs.

Of course, if it is just an occasional small purchase then you wouldn’t actually need to apply the rules for absolutely everything you buy – instead perhaps setting yourself a limit below which you don’t need to do so.

James McBrearty started his own business from scratch in 2006, to help the self-employed.

He helps people to escape from the corporate world and shares his thoughts here on the changing world of work, technology and personal finances; as well as the occasional travel post.

Over the next 10 years things are going to change significantly. James is a follower of frugality and minimalism; and an advocate of F.I.R.E. to minimise the coming disruption.

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