There's a common saying that “eternal vigilance is the price of liberty” – in other words, you can't just implement a system of rules and follow them blindly without paying attention. Instead, you must always be vigilant, keep an eye on things, perform maintenance tasks and adjustments as necessary, and otherwise make sure the system's still working as it should.
A similar principle applies to thrifty living. Sure, there are plenty of money-saving rules you can (and should) learn, but even so – you can't just memorize some list of rules and then live in strict, thoughtless adherence to them. Instead, you must pay attention to each individual case, to determine whether those rules actually work in a given situation. Otherwise, you might find that strict adherence to certain money-saving rules only leads to “false economy,” something that seems to save money in the short term but ends up costing you more in the long run.
Here are some false-economy rules to watch out for:
#1: Buying in bulk saves you money
There are two ways this rule can backfire on you.
First: if you're looking for the lowest unit price, it's true that bigger is usually better — we're all familiar with the phrase “giant economy size” — but “usually” doesn't mean “always.”
Just last month, for example, I bought some generic over-the-counter allergy pills at Target and discovered that a small bottle of 14 pills offered a lower unit price than a big 30-count bottle: I could buy 14 pills for $5.19 and pay just over 37 cents per pill, or buy 30 pills for $13.29 and pay 44.3 cents each.
Hence the rule “Look for the lowest unit price when you buy.” Which is a good money-saving rule most of the time — but even when the larger size (or bulk purchase) truly does offer a lower unit price, it still won't save you money unless you actually consume all of the product before it goes bad.
Once, during my poor-student days, I bought a 25-pound bag of potatoes because the price-per-pound was less than half the cost of my usual five-pound bag. Had I lived in a house with a cool, dark root cellar (or ate multiple pounds of potatoes per day, every day), that would've been a good money-saving idea. But in my small college apartment at standard rates of personal potato consumption, I wound up throwing more than half the potatoes away; they started sprouting (or worse) before I could eat them all.
Buy in bulk only when you know it'll save you money. In my case, it would've been cheaper and less disgusting had I tossed a handful of dollar bills directly into the garbage, rather than convert those dollars into several pounds of rotting potatoes first.
#2: Using coupons saves you money
Sometimes coupons do offer great deals. Other times they only encourage you to waste money. How can you tell the difference?
Coupons only save you money if you use them for something you already planned to buy anyway. If you buy extra things you didn't plan to get (and might not even use) just because you have discount coupons for them, those coupons ended up costing rather than saving money for you.
#3: The smallest payment saves you money
One of the most expensive financial mistakes people make is to buy something on the installment plan – anything from a credit-card purchase to a home mortgage – and focus only on the size of their individual payments, rather than calculate their total overall cost.
This mistake is what keeps the so-called “rent-to-own” or “lease-to-buy” stores in business. Check the typical offerings of a furniture rental store, for example: you can get a 47-inch smart TV for only $20 a week! What an amazingly low price, right?
Not at all. In fact, if you multiply that low weekly payment by the number of weeks you actually have to pay, you'll find yourself paying up to $2,100 for the same make and model of TV which regular retail stores sell for only $600. (And that's assuming you never miss a payment — otherwise, you could find yourself shelling out far more than the TV's actual $600 value and still end up with no TV at all, after the rental center repossesses it.)
Almost any form of buying on the installment plan will cost you more than paying upfront, especially when interest is being charged on the debt. This is especially true for people who make only the minimum payments on their credit card or other forms of debt. Yes, making the smaller payment means you'll have a little extra money in your pocket right now, but it also means you'll end up paying far more in the long run, once you factor in the interest on that debt.
#4: The lowest price saves you money
Checking unit prices, or determining the total cost of a payment plan, is easy, especially if you have a calculator. What's harder is determining the overall quality of an item — sometimes the more expensive option really is the better bargain in the long run.
The best-known example of this particular false economy might be the Samuel Vimes 'Boots' Theory of Economic Unfairness. However, Vimes is not an economist but a police detective, and a fictional one at that — he's a character in the Discworld series of books by the popular comic-fantasy writer Terry Pratchett:
The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.
Luckily, we live in an era where basic consumer goods are outrageously inexpensive by world historical standards, and needn't pay anywhere close to a month and a half's pay for a good pair of boots.
Though Vimes' rule still applies to boots and other necessities as well. If you need a car, for example, spending more money upfront for a late-model vehicle in good condition costs less in the long run than buying a high-mileage old “beater” likely to need frequent costly repairs.
#5: Bargain businesses always offer bargain prices
Just because a store has words like “bargain” or “discount” in its name doesn't automatically mean that every price it offers is lower than what standard retail stores have to offer. My local dollar store, for example, sells certain cans of vegetables which sell in the nearby supermarket for only 79 cents — a store where everything costs a dollar isn't necessarily a bargain when you can find the same items elsewhere for less.
Even thrift stores aren't guaranteed to offer the lowest price for items these days; occasionally you'll find thrift stores with price tags more in line with antique shops, or at least the more upscale consignment boutiques.
Outlet malls started out as places where people could hunt for bargains on factory-direct items, but today they're more likely to offer cheaper, cut-rate versions of the manufacturers' more expensive offerings. If you do shop in outlet malls, make sure you're familiar not only with the original price of the items you want to buy, but also their original quality – does the outlet-store offering match up to that?
Whichever money-saving rule you most closely adhere to, especially one you've followed for a long time, take a look at it from time to time, to ensure that it's still working for you. Remember: eternal vigilance is the price of not wasting your money.