When Cheaper Isn’t Better
At Savings.com we’re all about getting you the best deals. Sometimes, however, the best deal isn’t necessarily the lowest price. Familiar with the old adage, “You get what you pay for?” In some cases paying more can actually save you money in the long run.
Here are three ways to calculate whether or not cheaper is better:
In some cases, the money you invest in an item comes back to you in the form of savings over time. For example, if you have a hardcore Starbucks habit investing in an espresso maker will save you a lot of money in the long run. Or spending money for energy-saving appliances or CFL bulbs will ultimately be more economical than a lower price on a less efficient model. Make sure you factor in your long-term savings as a return on investment when making buying decisions.
Cost per use is one of my favorite spend vs. save equations. You might have seen this term applied to printers or ink cartridges, but I often use it for clothing purchases. Take the cost and divide by the number of times you’ll wear the item. For a trendy jacket that costs $100 on sale that you wear maybe ten times before the season and style changes, that’s a $10 CPU. But if you invest $300 in a classic trench coat that you can wear from Autumn through Spring, your CPU may be $3 or less! Another example of CPU is joining a gym. There are plenty of gyms with low monthly fees, but if it’s always crowded or too far from your home and you end up never going, then your CPU ends up being much higher than perhaps spending twice the monthly fee at a nicer gym that you actually attend regularly.
“PN/PL” is an acronym for “Pay now or pay later” otherwise known as “Penny wise and pound foolish.” In this scenario, you may save money upfront but you end up wiping out those savings later on down the road. There are many examples of “PN/PL”–one is cell phone plans. Getting a cell phone plan with the lowest monthly fee could actually end up costing you a lot of money later if you routinely go over your allotted plan minutes. Paying more for a plan with more minutes can actually save you money each month. Another example is insurance–especially health insurance. While the low monthly premium may be attractive, make sure those savings won’t be obliterated by high deductibles, hefty co-pays or lack of coverage in the long run. Travel is another area that can be “PN/PL.” Sure that bargain fare looks good now, but should you have to cancel or reschedule your flight you might be out of luck due to airfare restrictions. Also, it might save you some cash to book your stay in a hotel a few miles outside your destination, but if you have to shuttle back and forth those savings can be quickly eliminated with the hassle, time and cost of cab or bus fare. Interest charges are another instance of pay now or pay later. I had a friend whose wife ran up $25,000 in credit card debt. He had $60,000 invested in savings, but was reluctant to dip into it to pay off the debt. I finally convinced him that between the exorbitant APR and revolving interest charges, he was far better off taking the hit to his investment than carrying the debt for any period of time. An easy pay now, save later tip is this: stock up on Forever stamps at the post office. That way you save money each time the cost of postage increases.
When you break down cost into the true value of the item, you can determine whether it’s better to go cheap or invest in quality and durability:
- Save by using generic drugs but pay for the services of a certified and trusted physician.
- Save by buying a bargain comforter set but pay for a good quality mattress.
- Save by buying cheap no-brand toothpaste but invest in regular dental check-ups.
- Save by doing your own pedicures but invest in shoes that don’t hurt your feet.