Quote of the day

Loading Quotes...

5 Ways You Can Spend Money To Save Money

A Guest Post from Joe Pawlikowski –

What’s the difference between someone who is cheap and someone who is frugal? A cheap person will scoff at any expenditure that seems unnecessary at the time and will spend considerable time and energy to save a few pennies. A frugal person will examine all available options, tally up long-term outlooks, and make responsible financial decisions. Sometimes a frugal person lays out some cash up front in order to realize savings down the road.

The old business cliche is that you have to spend money to make money. But for the frugal-minded, it’s oftentimes wise to spend money if we can turn that expenditure into savings down the road. Here are a few areas where you can lay out some up-front funds to realize savings in the future.

1. Water heater

When my wife and I bought our first house, we got the standard advice from long-time homeowners. Watch out for this, watch out for that. One thing that nearly everyone mentioned was the water heater. They’re notorious for malfunctioning at the worst possible time, we were warned. This called for a little research.

The term water heater probably brings to mind those by cylindrical tubs that most people have in their basements. But we found a relatively new twist to water heaters. Tankless water heaters not only consume less water than their tanked counterparts, but they also use less energy. That translated to savings we could see on our electric bill (though the water bill went mostly unchanged).

Yes, it cost us around $400, but with the savings we’re seeing on our electricity bill we’ll be in the black in a few years. Since we plan to be here for the long haul, that’s more than fine with us. Plus, we nipped in the bud a potential problem. We’re fairly certain our tankless water heater won’t be going on us anytime soon.

2. Cell phone

Have you considered a prepaid cell phone? My wife and I hadn’t. We were content with our family plan on Verizon, even though it cost us well north of $100 per month. It just made sense, we thought. When we needed a new phone we could use our upgrades and get a discount, too. The savings seemed to be right there. But recently prepaid phones have started to make a lot more sense.

It used to be that prepaid phones were for those who didn’t have good enough credit for a postpaid line. They were sold in packages at retail and convenience stores, and were often associated with drug dealers (much more so thanks to the TV show The Wire). But lately prepaid carriers have started to move in a more modern direction. You can get many popular smartphones, including the iPhone, on a few prepaid carriers. So we gave it a shot.

Virgin Mobile recently started selling the iPhone. The iPhone 4, which is still a perfectly acceptable smartphone, costs a whopping $549.99. That might seem outrageous, but the outrage starts to fade when you see their monthly plan terms: $35 per month for 300 minutes, unlimited text messages, and 2.5GB of 3G data. With our Verizon plans we were sharing 750 minutes with unlimited texting and 2GB of data each for around $130 per month.

Even at a reduced price of $100 per iPhone 4, that’s a two-year cost of $3,320 with Verizon — two years, because that’s the contract term. With Virgin, including the $1,100 for the phones, our two-year cost of ownership is $2,780. That’s over $500 we’re saving, despite the high up-front costs.

3. Bulk items

While the cell phone concept might be a bit complex and involve a bit of myth busting, the purchase of bulk items is pretty straight forward. Anyone who has a Costco membership will probably rave about how much money they save by buying supplies at a huge discount, because they buy a lot at once. Yet I often wonder if these mavens factor in their membership costs. Sometimes the savings just aren’t there when you boil it all down.

The best way to handle bulk purchases, my wife and I have found, is to bargain hunt at the big box retailers. Target in particular runs attractive sales on bulk items quite frequently. The trick is to find them and take advantage before the sale expires. We’ve found values on paper towels and toilet paper that were better than Costco’s prices, period. That’s not even considering the membership fee for Costco.

Of course, you’ll need storage space if you’re going to buy items in bulk. We use our basement. Yet that leads to another issue, one that we learned because a friend learned it the hard way.

4. Backup sump pump

For those unfamiliar — and there are plenty of areas in the country that don’t allow basement construction — sump pumps are the little gizmos that help prevent your basement from flooding. If your basement sits below the water table, it’s an absolute necessity. Without one, your basement will surely flood. Even if you have one, you’re still at great risk for basement flooding.

Many years back, while hanging out in a friend’s basement, we noticed a little pool of water developing in the corner. It had been raining heavily, but they had a sump pump running. Only, it had broken a few weeks before. They had no idea. We immediately tried to get all electronics and valuables to high ground, but we couldn’t get everything. It was as though the rain was coming directly into the basement. We used buckets to help bail it out, but it wasn’t until my friend got back with a new sump pump that we made any real progress. He lost plenty in the mess.

A backup sump pump might cost you $150 or so up front, but it stands to save you plenty. Basements make for great storage places, but that doesn’t come without risk. We store plenty of valuable items down there, and so we keep a backup around just in case something goes wrong. I wonder how much my buddy would have saved if he didn’t have to drive to Home Depot to get a new one that day.

5. Emergency fund

OK, this is stretching the definition a bit, but it’s important enough to mention. A few months ago Joe expressed concern with emergency funds, and reasonably so. But for homeowners, an emergency fund can be a money-saving tactic. It doesn’t have to be the three to six months’ salary that people refer to as the “rule of thumb,” but some sort of household fund should be in place.

Why? Because you never know when something’s going to break. Your pipes might burst. Your furnace might shut down. You might have a septic system overflow. Heck, your hot water heater might break. These can bring big costs, especially if you need to employ a plumber or other skilled tradesman to make the repair. Labor is expensive.

Unprepared households will have to charge this expense, and that means interest charges. But by keeping a thousand or two in a household emergency fund, you can ease that burden. This used to work a lot better, when savings accounts such as ING Direct offered 3% APY, but it’s still a good idea. The last thing you’d want is to put a new furnace on credit and pay it off with interest.

The examples can keep going. In so many instances it makes sense to pay a bit extra up front if it means savings later on. My wife and I might pay $30 for 48 rolls of paper towels, but that’s cheaper per-roll than a 12-pack. We might pay $1,100 for two iPhones, but it comes out to less than we were paying with our $100 iPhones on Verizon. If we’re looking at the big picture, these kinds of expenses can turn into savings before long.

Joe Pawlikowski has blogged about topics ranging from baseball to mobile phones. After years of credit card debt and horrible financial management he’s set himself straight. You can read some of his personal thoughts at JoePawl.com.

  • Barbara Friedberg August 29, 2012, 12:43 am

    Really great advice. I’ve been with Virgin for my cell phone for years. I’m also convinced about the water heater. I’m going with a tankless next time.

Leave a Comment