Sacramento Head Start Alumni Association

Big Money Mistakes That We All Make

Oct 18, 2004

Big Money Mistakes That We All Make

Angie Zalewski
Frugal Family Network, Inc.

Special from Bottom Line/Personal


tores and on-line retailers are experts at getting us to spend too much. If we understand why we buy, we can break the cycle... stop being manipulated... and save hundreds -- even thousands -- of dollars a year.

The most common pitfalls and how to avoid them...

COCKEYED OPTIMISM

We miscalculate how much we will use products and services. Actions to take...

Be wary of long-term contracts that promise great savings. Examples...

Gym memberships. People who join gyms are so optimistic about getting in shape that they vastly overestimate how often they will work out. Result: They spend 70% more than they would if they just paid for each exercise class or workout session. Gyms take advantage of this tendency by advertising flat-rate pricing as a bargain when it's not.

Vacation time-shares. Promoters sell time-shares based on savings over hotels. They don't point out that even if you don't use a time-share, you have to pay hundreds of dollars in annual maintenance fees. Strategy: Stay in hotels, unless you're sure you'll vacation in the same place every year. If you do decide to buy a time-share, make your purchase from the resale market instead of from a developer. On-line marketplace: www.timeshareresources.com.

Cell-phone plans. Providers entice customers with low-cost deals for few monthly minutes. When you surpass the limit, you get slammed with per-minute charges as high as 40 cents.

Strategy: Look at your home phone bill to estimate how many cell-phone minutes you might use. Choose a "pay per minute" plan if you need a cell phone only for emergencies or for less than 60 minutes a month of long-distance calls. Typical cost: 15 to 25 cents per minute.

If you are a moderate cell-phone user, choose a "bucket of minutes" plan. The monthly fee includes a set number of minutes. Example: $34.99 for 1,200 minutes -- most of them weekend minutes.

Choose an "unlimited" plan if you're always on the phone. Typical cost: $99.99 to $149.99 for 1,000 to 4,000 minutes.

To compare plans, contact Get Connected, Inc., 800-775-2506, www.getconnected.com.

Also keep down the cost of the cell phone itself. Extras such as a built-in digital camera can add $50 or more to the cost. To compare cell-phone deals, go to http://cellphones.about.com.

Only pay for features that you need. Several years ago, I bought a showerhead with 12 water-pulse settings for $75, but I always keep it on the same setting. A basic showerhead would have cost $25.

More extras you may not need...

Platinum credit cards. Typical cost: About $75 annually. Services you may not need: Credit lines of $100,000... concierge service... travel accident insurance.

Premium cable service. Typical cost: At least $200 a year more than basic cable. Services you may not need: "On demand" feature that lets you access programs when you want... digital video recording that lets you pause live TV or record two shows simultaneously.

Automobile add-ons. Typical cost: $500 and more over the purchase price. Features you may not need: Electric windows, DVD players, oscillating vents, sunroofs and seat warmers.

COMPARTMENTALIZING

Consumers may view the same purchase very differently depending on...

Source of cash. We're more likely to splurge on luxury items with a bonus than with our regular paycheck.

Mood. We spend more money than we normally do if we believe the product will alleviate unhappiness or anxiety.

When payment is due. We overspend if monthly payments seem low or we can wait before making payments.

Actions to take...

Wean yourself from impulse buys. If you spend money when you are stressed, meet a friend or engage in a hobby instead. When you shop, make a list and take only enough cash for those items.

Build in a time delay when buying nonessential items. By the time the waiting period expires, the urge to buy may have faded. Wait 24 hours before splurging on items that cost more than $100 ... until the end of the day for items from $25 to $100... until you've left the store for items that cost less than $25.

Purchase only items that you can return -- so you can change your mind.

Buy luxury items that maximize your satisfaction. Ask yourself, "If I have $50 to spend, will four CDs that I'll listen to once or twice give me the same sense of fulfillment as a designer silk tie I can wear to work?"

Factor in hidden costs of big-ticket items. Example: A client wanted to use his year-end bonus for a down payment on a $40,000 sport-utility vehicle. The dealer was able to arrange financing so that the monthly payments were affordable. With insurance, fuel and maintenance costs, however, the car would cost twice that amount. Helpful: Calculate the real cost of any purchase at www.adding.org.

OVERRATING CONVENIENCE

We have gotten carried away with the notion that "time is money." It's illogical to pay a premium just to save a few minutes. Action to take...

Before buying a convenience item, estimate how much time you'll really save. Example: Paying $4.99 for a roasted chicken instead of $1.99 for a fresh bird might be worthwhile to avoid 90 minutes of preparation and cooking time. However, buying six 12-ounce containers of yogurt for 99 cents each (total: $5.94) isn't worth the saved time. Individual cups cost 40% more than the same amount of yogurt in a single large container ($3.29). It takes a few seconds to spoon yogurt into a bowl or portable container. Annual savings: $138.

PROCRASTINATING

Retailers count on us to be forgetful or lazy. Examples: You move your credit card balance to a new card with a low teaser rate but fail to pay off the balance or don't transfer it to another card before the rate jumps... you misplace gift certificates from stores or fail to mail in rebate cards... you keep meaning to change to a lower-cost Internet service provider but forget to do so.

Actions to take...

Keep a calendar and jot down deadlines for returning purchases, mailing in rebate offers, paying off transferred card balances, etc. Software such as Quicken and Manage Your Money will save you money by setting up automatic reminders.

When it comes to paper, be a tiger. I send out rebates as soon as I get home from the store. Bills are paid upon receipt. I might lose minuscule interest by sending payments early, but I avoid late fees.

Keep all original product packaging in a designated spot in case of defects or returns. If you're short on space, flatten the boxes. Tape receipts to the boxes.


--------------------------------------------------------------------------------

--------------------------------------------------------------------------------


Bottom Line/Personal interviewed Angie Zalewski, cofounder of Frugal Family Network, Inc., Dripping Springs, Texas. www.frugalfamilynetwork.com

She is coauthor of Cheap Talk with the Frugal Friends (Starburst) and a regular guest on the cable show Smart Solutions on The Home & Garden TV network (HGTV).