This post is a guest post from Brian Kuhn. You can read more about Brian at the end of this post.
There should be another word in our society’s financial vocabulary. There should be investing money, saving money and then finally storing money. Why? Well the difference between investing and saving is somewhat clear. Investing is the act of putting funds at risk for the potential of a return of that money and more as compensation for the risk. Saving money is supposed to be pretty clear it is the act of lowering a cost, timing a purchase, lowering the interest rate on a debt, or refraining from spending money you currently have so that it stays under your control. There are even other examples of so called saving money it is a broad category.
But did any of those actions actually guarantee that you have more money set aside in an account you would access later? Not necessarily. Sometimes they cause you to actually spend money to celebrate the savings, and sometimes spend even more than you saved.
Storing money on the other hand is the act of putting money you have earned in a place that is accessible later. This place you put it may or may not have any risk to it. It might just be a separate bank account. Storing money is not very popular among our consumerism and capitalism society. Borrowers of money want you to invest so they have the use of your funds. Retailers try to get on board with the popular saving money goal to advertise their products. But really they are advertising the opportunity obviously to spend. Here are 5 common examples of honest methods of saving money, but only if you immediately take what you just saved and store it in a safe place for later.
Everyone has probably seen the commercials. 15 minutes for 15% and the price gun and comparing competitor’s rates and so on. There is nothing wrong with comparing rates unless you are going to have a lawyer review the contracts you are being offered to spot differences. And who wants to do that? But what happens in these commercials once the person realizes they are saving money? You got it they are rewarding themselves for doing so by spending money.
The circumstance that comes to mind is a woman buying a purse. Let’s walk through some hypothetical numbers and see if she’s really making a good decision. Let’s say her car insurance was $100 a month and she saved 15% like the commercial says. 15% of $100 is $15. And she would save that 12 times over the year so she has $180 to work with. I’m not an expert in this part but know any good designer purses for $180 after sales tax? And the $15 is monthly over the next year while the cost of the purse is immediate. If you save yourself $15 per month by doing some savvy price comparing, put that $15 aside in a separate account each month, and do it on the exact date your car insurance bill is due. Yes you don’t have the purse. Maybe you buy that once you do it for 12 months. At least then you didn’t buy it with a credit card.
Cable Television Contracts
It is popular these days and probably will become more popular in the future to “cut the cord” on your cable bill. It appears to be cheaper to sign up for web based subscription services then the old fashioned cable account. You might not catch all the live shows but you have given the cable companies enough over the years, and your friends who still have cable can take care of the missing the show problem. Again here this is all only worth it if you take the difference and set it aside each month. Maybe take some of it and buy something nice for that friend you invite yourself over to, but don’t use all the savings than you are just paying your friend’s cable bill.
Refinancing a Mortgage
This is a big one. Ever go through a refinance process on your house and due to a lower interest rate, the removal of PMI, or starting a new 30 year term you find out you are going to save $200 a month or so? Great news right? Ever look back a year later and wonder where that $200 a month went? You wouldn’t be alone. Total household expenses have a way of rising, or sometimes falling, to meet whatever is coming in through income. You save $200 a month, you end up having it absorbed into other expenses without even realizing it. Sometimes this is worth it like you apply it to credit card debt instead or maybe you join a gym and use it consistently. But something positive has to be identified for that savings so you can store it for later. Separate bank account, conservative investment account, credit card debt pay down, something.
Credit Card Balance Transfers
Transferring a credit card balance from an 18% rate to a new card that offers 0% for 12 months is in fact saving money. It can be a very good thing and is done all the time by consumers these days. A balance of $5,000 of credit card would incur $900 of interest charges not counting any payments you make over the year. But make this move and then incurring $1,500 of new charges without paying down the original $5,000 makes for trouble.
Customer Rewards Programs
Stores want sticky customers. They want customers that have more of a reason to come back and less of a reason to go elsewhere. So they create discounts, memberships and programs and cards, and newsletters, and affiliations and so on. Sometimes there are real savings in using these programs especially if it is a store you shop at regularly any way perhaps like your local grocery store. They hand you the receipt and say you saved $4.67 today. Where does that $4.67 go? Well at the moment it remained in your checking account. Storing money is an everyday battle just like spending money is. And we have some tools now that we didn’t have before. You saved $4.67? Go on your bank mobile app and move $5 from your checking to savings. Have a good day for other reasons? Reward yourself by moving some money into your investment account. Have a bad day? Make yourself closer to being debt free by moving a little money to your credit card. Sooner or later you might find you have made more progress than you realized.
Brian Kuhn CFP® is a financial planner with PSG Clarity in Fulton MD. His market niche is exclusively working with people who do NOT feel wealthy. Check out www.psgclarity.com and his new book “The Personal Finance Handbook” available at Amazon.
Securities offered through Triad Advisors, Member FINRA / SIPC. Advisory Services offered through Planning Solutions Group, LLC. Planning Solutions Group, LLC is not affiliated with Triad Advisors. PSG Clarity is a division of Planning Solutions Group, LLC