When A Bargain Isn’t A Bargain
I love bargains. In fact, I have such a reputation among my friends, they sometimes ask me to help them shop; I truly am “Dealtime Deb.”
I love the hunt of finding just what I need at the best price. I’ve written previously about practical ways to save money. It just makes sense to shop around to make your limited resources go further.
However there are times, many times, when a bargain is not a bargain. I have stuff in my house I never use. I made the mistake of falling for a deal when I really didn’t need it or could not afford it.
How do you know when a deal is a deal?
Here are some reasons our justifications may not be justifiable at all:
You don’t need it. Buying something because it seems like good deal—but is something you would otherwise not even consider purchasing—is no deal at all. Sometimes this involves saying no to a high-pressure salesperson.
You get what you pay for, which often means “cheap.” Some things may be a good price, but their inferior quality means they will not last. Think back to something you were excited to get as a child, only to be disappointed when it broke. It’s often a better deal to spend a bit more for quality.
You didn’t budget for it. Financial advisors like Dave Ramsey are sticklers about making a written budget and sticking to it. While I’m not so fanatic (perhaps I should be), I think there is wisdom in it. The idea in making a budget is that you set priorities. Rationally telling your money where to go each month is safer than giving in to situational temptation when walking past a store item or finding a deal online. The power of budgeting is that you spend your money on paper before you’re exposed to the emotions of a deal that just presented itself.
You put it on a credit card or you cause your checking account to be overdrawn because you don’t have the money. Paying 10 or 20% interest or getting slapped with an overdrawn fee can easily eat up whatever savings you think you got on an item. A good principle is to live on last month’s income. When you put things on credit, you’re spending next month (or next year’s) income. While we rejoice in our perceived savings on a bargain, we too easily dismiss the interest we’re paying. Only use a credit card if you can afford the item and will pay off the bill when it’s due.
You buy on impulse. The retail business knows you better than you know yourself. They know they can get you into a store or to a site with the offer of a “deal you can’t pass up.” However, once there, you find lots of other enticing products or services. Grocery stores know this too well, which is why they put candy bars and magazines by the checkout counter. If you see something you think you need at a killer price, sleep on it.
You believe the deal will be gone. This is perhaps the most enticing temptation of all. The deal is for a limited time, and if you don’t get it now, you’ll never get such a deal again. This is rarely true. But we are emotional beings and start to believe we must get something now or we will have lost out. We rarely lose out by waiting.
You deserve a break today. That was not only a McDonald’s ad campaign, it’s something we all battle with. We work hard. We’re stressed. We deserve that thing. Sometimes it is good to reward yourself. But buying things you can’t afford is not giving yourself a break; it’s often mortgaging your future.
You don’t think about the long-term cost. For example, you could spend $5,000 on new furniture. Assuming you didn’t put it on credit, you think it cost you $5,000 (plus tax). However, if you were to invest that same $5,000 into a good-growth, diversified money market account averaging 10% interest for 30 years, your $5,000 initial investment (with nothing more added) would grow to $87,247.14! So even if the furniture was originally $10,000 and you got it for $5,000 (saving $5,000 at the time), you could have MADE more than $80,000 by investing that same money and sitting your bum on the old couch. These kinds of calculations give me a little perspective; they cause me to think long-term. (Click here for an investing calculator to see what your money could do.)
You seem to get something for nothing. That is likely the most sinister allure of all. You get something free for signing up, some sort of introductory offer, or you get the promise of rewards down the line. These could include points (vacation, credit card, etc.), status (airline frequent flyer benefits), or other things. Think about what that free dinner or initial discount will cost in the long run if you end up spending money you don’t have for stuff you don’t need. Retailers know they have the advantage, and they usually win. Most rewards programs are actually very difficult to cash in.
Most of us want good deals that will stretch our money. But consider if the bargain you are pondering is really a bargain at all.