6 money 'savers' that can cost you
These activities may seem like the frugal thing to do, but they can waste your money if you don't proceed with care.
This guest post comes from Naomi Mannino at Dealnews.
Thrifty shoppers are always looking for ways to save money whenever possible, whether by cutting weekly or monthly spending, or by stretching a dollar through sales and coupons.
But take heed, because some common efforts to save actually result in wasting money. Changing the way you shop, switching to a different financial service and other actions -- all under the guise of saving -- can often be more detrimental than you might think. Here are some of those common pitfalls:
Switching banks
- Why you think it saves money: "Why am I paying all these bank account fees? I'm going to switch banks for a free checking account and more ATMs."
- How you can overspend: Despite last year's fervor for Bank Transfer Day, switching banks can be costly. You can easily incur overdraft fees from not-yet-posted or pre-written checks and from transitioning automatic bill payments and direct deposits. New deposit requirements or availability policies can result in low-balance fees while you learn how to maintain "free" checking accounts.
- Smarter saving: Find a bank that offers free checking with no requirements and a ready-made bank "switch kit." Keep your old checking account open for several months until you are certain all automatic payments and checks have cleared.
(Post continues below video.)
Spending for rewards
- Why you think it saves money: "I get cash back for things I buy anyway, so put it on the credit card."
- How you can overspend: According to a recent Nilson Report, average monthly spending on a non-rewards credit card totaled $465; with rewards, it reached $890. You may feel compelled to spend more when you think you're earning rewards. But be careful, because balances carried over can quickly eclipse rewards as you'll have to pay off interest on your principal. Personal finance experts also warn that mental accounting weakens with credit card spending. You'll likely have a harder time keeping track of what you're charging than if you were paying for everything in cash.
- Smarter saving: Stick to your shopping budget and always pay off credit card balances before the due date. For rotating rewards categories, spend only in those higher-paying categories (for example, 5% on groceries vs. 1% on gas). Search for a reward credit card with no rewards expiration date and no annual fees.
Disclosing your maximum monthly payment
- Why you think it saves money: "The salesman will stick to my monthly payment budget if I tell him what it is." (How much car can you really afford? Try MSN Money's calculator.)
- How you can overspend: Rather than offering you the best price for an item paid for in installments, like a car or loan, salesmen often try to bloat the package cost so that it reaches (or goes slightly over) your maximum budget. If they know you're willing to spend a certain amount each month, you can bet they won't opt to undersell you.
- Smarter saving: Stay focused on cutting the overall price of your purchase so that you'll end up with a lower monthly payment. Don't let salespeople pack any extras into your plan.
Shopping at warehouse clubs
- Why you think it saves money: "Everybody knows that buying bulk results in a lower cost per unit."
- How you can overspend: Not every item at a warehouse club like Sam's or BJ's Wholesale is a great deal; many are bundled and packaged specifically for the warehouse clubs. So even though you're buying a cellophane-wrapped crateload of regular-size items that appears to be cheaper overall, you may not be saving much per unit in the end. Instead, you've succumbed to an expensive impulse buy that you might not actually use completely.
- Smarter saving: Know your grocery store's regular and sale prices, as well as the package sizes of items you buy in bulk at warehouse clubs. Then, do the math to compare the unit price to confirm savings. Make a list of only those warehouse items that save you money and stick to it.
Outlet shopping
- Why you think it saves money: "They sell last season's brand names at a lower price."
- How you can overspend: Not everything at the outlets is of the same quality you find at full-price department stores In fact, manufacturers often produce cheaper goods specifically for outlet stores. Moreover, there are plenty of outlet stores online, and many of them will frequently offer additional promotions that beat the savings of shopping at traditional brick-and-mortar outlets.
- Smarter saving: Be sure to compare outlet prices with department store prices, and learn the differences among designer and brand-name items. When considering an item, look at the fit, stitching, fabrication and embellishments, as these areass are where manufacturers tend to cut costs when producing outlet goods. At department stores, you'd do well to shop end-of-season clearance sales and can save a bundle with stacking store coupons.
Using a prepaid debit card
- Why you think it saves money: "My paycheck gets deposited directly onto the card so I can automatically use it and avoid bank fees!"
- How you can overspend: The ads makes prepaid debit cards sound easy, but don't fall prey to their marketing without understanding the swipe/usage or reload fees. These can end up costing more than a "free" checking account with a debit card.
- Smarter saving: Read the fine print on these offers and be sure to read through the fee chart. You should consider a free checking account with no requirements instead; it will help you learn to budget your money and track spending better.
More from Dealnews and MSN Money:
Switching Banks: This should never be costly. Customers should know what automatic payments they have set up and also know what outstanding checks they have. Also the sooner they close the account the sooner they are avoid overdrafts. Of course if you wrote a check that has not cleared you are kind of stuck. And if you are not good with keeping track of your checks switching banks likely will not protect you from the fees you are paying aka overdrafts.
Rewards Cards: There are two reasons that Rewards Cards spend more. The main reason is people like myself who use it instead of a debit card. I not only pay it off monthly but often pay it off every week or two. The second reason is people choose to use their rewards card over there normal card for bigger purchases (and purchases in general). Of course those that carry a balance will have less of a spending limit each month. So maybe that points to another reason that people spend more on a mouthly basis on a rewards card. Since they don't carry a balance they can spend more. I have seen no rewards but based on people i know I would guess that rewards cards earn the bank less interest. Where they make money is in the fees from retailers.
Disclosing your maximum mouthly payment: This is never an issue if you are buying the car you want. I dare say in my experience on both sides the only effect it had was to get the buyer a better rate. Of course if you are the kind of buyer who is a lay down and you tell a salesman that you can afford $500 a month but are looking at $15k cars of course they may hard sell you on all the upsells and get you to buy at MSRP. But really how many uninformed buyers are there these days? If you have good credit and a brain letting a salesman know this is no biggie. The F&I manager worked his **** off to get me the payment I told him I needed to buy. I had done the math and decided what rate I was willing to pay. Amazing how my max payment fit perfectly into my numbers both on price and rate.
Warehouse Clubs: This is all commmon sense. Buying in bulk doesn't save money always and on food items it will almost always be cheaper to buy store brands, use coupons on name brands, and watch for sales. I buy a few items at the warehouse club that I can not get normally for a good price like bulk snacks and frozen food. I also have a friend with a membership buy me these few things so I don't pay the yearly fee. I simply don't need the member ship since I only buy 3 to 4 times a year and never over $100 a time.
Outlets: These are often used as the article points out to draw lower priced customers into a brand. Many of the things you find at the outlets are clearence or outlet exclusives. The exculsives are normally lower quality and the clearence stuff is priced higher than if they left it in stores. That said you can find deals on clothes especially if you are an odd size like me. I am very tall and chubby and few stores carry my inseam let alone in my waist. But for most average sized people it appears to be a waste of gas unless you live close or are passing by. Making a trip there is normally not worth it.
Pre-paid debit: I don't think this article understands that some people can't get checking accounts due to being in a database (forget the name of it). My ex-wife is one of them. For people like her there are two choices. One they can get a pre-paid debit which is what most do because it is easier. Or two they can search for a bank that doesn't use the database which is what my ex-wife did. Of course some if not many of these pre-paid cards are aimed at poor and uninformed consumers. But in the end it is their responsibility and not ours to protect themselves and know what they using.
13 of the 19 comments are SPAM??? Seriously - hit the spam option on those.
And just as bad - leave your old checking account open for several MONTHS?? when switching banks to be sure all checks have cleared and all automatic payments have ended - that has to be a typo. Anyone who can't do that in 4 weeks or less needs a lesson in bank reconciliations.
BTW - the picture of the fella for this story is the same as the picture used for the "Your Spouse's Credit Card Secret" story in the Credit and debt category at the top of this page. Lol, apparently he's not very adept at finances. Maybe the Rich/Single spammers can help him out a little bit...
I shop at a "warehouse club" as well as regular stores. The trick to using ANY store is to check the price per unit (oz, lb, etc.). Also, if you do shop at a warehouse club, compare how much money you save, if any, with the yearly fee(s). If it takes 6 months or more to save enough to offset your fee(s), a warehouse may not be right for you.
example: your yearly fee is $90. in 6 months you have only saved $30.
I normally save enough money in 2 months to offset my yearly fee, so i will continue to shop there.
Dollar stores are also an option, but be forewarned, they are not always the cheapest way to go.
Even if they are cheaper, the quality may be bad enough that it would be better to pay for the more
expensive brands.
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