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Finance

Saving Money: When Is a Bargain Not a Bargain?

You've probably heard this before. That's OK, you'll hear it again because it's still true. It isn't the things you don't know that get you, it's the things you know for sure that just aren't right. That's particularly true when it comes to saving money. We grew up accepting certain things about saving money that may well have been true at one time. They may still be true in some cases. If you don't know which case is which, you may as well take some of your cash and torch it. (Or send it to me and I'll do it for you. Yeah, right. ;-))

"You'll save money buying the biggest size __________."

Maybe so, but I want my handy pocket calculator to verify it. Here's how I see it.

First, is the biggest size really the cheapest? Recently at the grocery store, I was buying cold cereal. The brand doesn't really matter. The store stocked three sizes -- tiny, normal, and this thing has its own zip code. Three different prices. Was the big box the best deal? No. Take the price and divide by either the number of ounces or the number of servings in the box. I use the number of servings from the nutrition panel. In this case, the lowest cost per serving came buying the middle size. The most expensive cost per serving? You're reading ahead, aren't you? Yes, it was the biggest box.

Second, even if the biggest size is the lowest cost at the register, is it the lowest once you get home? If you buy that block of cheese that takes two of you to load in the minivan, but you throw half of it away, is it still a bargain? Take the price you pay and divide by the servings you actually use. That's your true cost.

"It was on sale" and its cousin, "I had a coupon."

Sales and coupons are great for stuff you would buy anyway. They're also good for stuff you want to try. But I'll bet if you look in your closet, you'll find stuff that's been there for a long time and still has the sale tags on it.

Let's take this idea to the absurd limits. Are you really getting a bargain on that fifty pound sack of dog food, on sale and with double coupons, if you don't have a dog?

"It's cheap, but it'll get me by."

Even if that cheapo is on sale, has a coupon, and is something you need, is it a good deal? As Zig Ziglar says, the 'get-by' is seldom a 'good buy'. Put another way, cheap things are seldom good and good things are seldom cheap.

Let me give you an example. When I was younger, I tended to get cheap cars. All I needed was basic transportation. So I bought a $1200 older car. A year later, I put an $800 transmission in it. The year after that, a $1200 engine and $400 in brake work. When I traded it in, I got about $600 for it. So, for $3000+, I had a car I drove for about three years, or about $1000 per year. After the third year, I traded that car for a new, $7000 pickup truck. (I told you this was some time ago.) I drove that little pickup for 7 years and put about $120 beyond basic maintenance. When I traded that vehicle, I got almost $5000 in trade. I drove that little pickup 7 years for about $2000 or a little under $300 per year.

Which was the better deal?

The bottom line is to save money, you need to do your homework. You want fair value for your money. One final piece of advice - read the fine print.

There are several dial-around phone services offering flat rate calls. One used to spend millions on B-list celebrities telling you that you could still get a 20 minute phone call for 99 cents. If you talked for exactly 20 minutes, it wasn't a bad deal. Talk for more, and a higher per minute rate kicked in. Talk less and you still paid 99 cents. So if you used the dial-around to call Grandma, and you spent 15 seconds listening to her answering machine, that call actually cost you $3.96 per minute. What a bargain!

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John McCabe

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