Word Play to Separate You from Your Money
There seems to be some confusion these days about what it means to “save money.” Over time, retailers have altered a more old-fashioned definition to give the impression that a buyer will be better off financially if they make a certain purchase.
Let’s explore some possible definitions. I suppose you can use whatever definition you like. Personally, I prefer the first two definitions. Definitions #1 and #2 result in actually having more money; Definition #3 neither increases nor decreases outgo; Definitions #4 and #5 result in actually having less money. These last two definitions can pretty much wreck a budget.
Definition #1: To set aside money
A hard-line definition might say that in order to save money, you must set it aside and not spend it for a period of time. Ideally, the saved money would be put in an interest-bearing account where other money can be added. The accumulated money might eventually be used to make a large purchase such as a downpayment for a house, college expenses or a vacation.
Example: You take $50 from your paycheck and put it in a savings account for buying Christmas presents in a couple months.
Definition #2: To spend less money than originally planned and set aside the difference
This definition adds a new component to the first one: there is a difference between what something was going to cost and what it actually cost. The difference in what was planned and what was spent is set aside and not spent for a period of time.
Example: you were spending $80 each month for your cell phone service. Then you switched to another carrier where you only spend $65 a month. You take that extra $15 a month that you would have spent on your cell phone bill and put it in account to save up for a new phone (see previous blog, “Over Committed”).
Definition #3: To spend less money than originally planned and spend the difference
\Again there is a difference between what something would have cost and what was paid. However, the money that did not get used for that purchase is not set aside, but is used to purchase something else instead. In the end, ther person has more money than they did before.
Example: You buy a grocery item on sale and use the difference to buy more groceries. You have more groceries than you would have had otherwise, but no more money than you would have had if there hadn’t been a sale.
Definition #4: To spend less money than you potentially could have spent
In this definition, a “savings” is the difference between what you spent and any possible larger amount. Many people cite this kind of “savings” in an attempt to justify an unnecessary purchase.
Example: You buy a used iPad on E-bay for half of what it costs at the store. Although it was an unplanned expense of $250, you can claim that you “saved” $250. In reality, you have $250 less than you had before you got the iPad.
Definition #5: To spend less money per item than if you purchased a smaller quantity of that item
Using this definition, “saving money” actually costs money. Calling this a “savings” is a common sales ploy that encourages people to buy more than they need. Ultimately, the person may have more stuff, but now they have less money than they would have if they followed their original plan.
Example: As you order 3 slices of pizza and 3 sodas, the clerk informs you that you would “save money” if you bought a whole pizza. However if you got a whole pizza plus drinks, you’d have to spend several dollars more than you would have by ordering the 3 individual meals. Hope you like leftover pizza, too.
Seriously…
I just wanted to share this little reality check because I recently had that “save-money-by-buying-a-whole-pizza” thing happen to me. Fortunately, I did a little math in my head and quickly realized that with that option there would be about four and a half dollars less in my wallet for me to use for lunch on another day. I politely declined. I felt like the clerk’s heart was in the right place and that she wanted the best for me. She was just a little confused about what it means to save money.
However, in another similar situation, a clerk told me that I would “spend less” if I bought the combo. I took those words at face value and did it. Later I did the math and found that although I had more food, I actually did spend more money, not less. Dang!
So, beware of messages that tell you that you will save money, because it’s not always true. Now that you’re aware, I bet you’ll see the “savings” claim everywhere!
