Anybody that knows me — either through this site, or in real life — knows that I love to save money. I think it’s one of the best feelings in the world to know that I have a stash of cash at my disposal. I’m a firm believer of paying myself first which is the process of saving/investing just after getting paid instead of waiting until the end of the month when money might be tight.
While I’m putting away money every month and building my reserves, most consumers are saving in a different way; a way that isn’t really saving at all.
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This looks like a mad scientist, but is actually a marketer in action!
I’ll start this off with a question: If person A goes to the store and buys an item that normally costs $10 for $5, and person B decides to put $5 into a savings account; who saved more money? Without reading ahead you might think that both people saved $5, but really person B is the only one who has committed his money to actual savings.
When referring to money the word “save” can mean one of two things. The first definition is the one where you end up having more money: “accumulate money: to set aside money for later use, often adding to the sum periodically”. The other definition is the one that marketers use to take advantage of consumers: “conserve something: to avoid wasting something or using something unnecessarily”.
With the marketer’s definition it actually sounds like they’re trying to hook you up, and make you spend less money. But honestly, how could they possibly be helping you “save money” when they’re trying to get you into their stores to spend money? “Buy a new car and save thousannnnnds!” — this may be the most illogical sentence on this entire site, because you can’t save money when you’re spending money.
Now if you need to buy something, and it happens to be on sale you should take advantage of the sale. While I highly recommend buying things you need while they’re on sale, I offer a word of caution: Just because something is on sale doesn’t mean that you need to buy it. If you go shopping without a clear picture of what you actually want/need, you’re going to end up spending more money than you anticipated. The sale does it’s job by getting you into the store, and — believe it or not — there are people who go to college to learn how to position sale items to make you spend more money!
Malls, and car dealerships aren’t the only places that take advantage of false-saving promotions. When you go to the grocery store the front-end cashiers are trained to emphasize your savings amount before they hand you your receipt. Our standard grocery store, Safeway, prints the percentage “saved” right on the receipt so you can walk out of the store feeling good about yourself, because most people will feel better about spending money if they knew that they could have spent more.
We need to shift our mindset away from the savings and onto the spending. When you buy an item on sale for $50 that originally costs $100, you aren’t saving $50, you’re spending $50. We allow numbers to confuse us and we develop irrational mindsets towards future purchases whenever we see price reductions. There’s a reason why almost everything in every store is on sale almost all of the time! A brand new TV that retails for $1,999, might be “on sale” for $1,499 which stimulates something inside the average consumer’s brain: buy this TV, save $500! No, silly-pants, you just SPENT $1500!! SPENT, SPENT, SPENT!
Saving isn’t spending, so what is it? Saving can be broken down into two main categories. The first is long-term savings which is money that you don’t really have a plan for besides the fact that it’s going to help you afford things (especially when you’re retired). The second form of saving is also known as “delayed spending”. This is when you save up for something in specific, whether it’s a new laptop or a house; in other words: this money is pre-spent in your mind, even though it may take you a few months to accumulate. It’s kinda like the opposite of having a credit card payment.
How do we fix the problem and reclaim the word “saving”? It honestly starts with the consumer; with us. We need to stop buying in to the marketing speech. Whenever you hear an advertisement claiming that you’ll save money this weekend at the mall, you need to audibly scoff. Explain this concept to children, so they can grow up understanding that spending is spending and saving is saving, and these things are completely separate topics of finance. We can still take advantage of sales, and price-reductions, but we should know that unless we are transferring money into savings accounts or investments we aren’t actually saving anything.
The post You can’t save money when you’re spending. appeared first on Johnny Moneyseed.