After all, frivolous spending is something that we’re all guilty of at one time or another.
The good news is, getting the urge to splurge under control makes it possible to save significant amounts of cash that can be used to stretch your household budget.
Here are several things people often overpay for:
(Premium) gasoline. Two years ago I conducted an experiment where I ran premium gas in my 1997 Honda Civic for 30 days and actually averaged one mile per gallon less than when I was running lower-octane unleaded. Premium gasoline is intended for use on a very narrow niche of cars. Unless your owner’s manual calls for high-octane fuel, it isn’t necessary.
(Overly-generous) tips. Never mind that tip inflation has caused the average bonus for good service to increase from 10% in the 1950s to, depending on who you ask, 15% or 20% today. Some people give overly-generous gratuities simply to make a good impression on the server. Even worse, they’ll often leave average tips for poor service because they donâ€™t want their server to dislike them. Both practices make little sense, especially for folks on a limited budget.
(Organic) produce. Many non-organic fruits and vegetables such as onions, avocados and corn are grown with significantly lower pesticide loads than others, which is why some organic produce isn’t worth the steep prices they typically command. In many cases, you’re much better off buying the conventionally grown varieties and then carefully washing them.
(Non-generic) medicine. The United States Food and Drug Administration constantly tests and analyzes generic medicines to ensure their effectiveness, which is why they maintain that generic medicines perform just as well as their brand-name counterparts. Yet, many folks insist on paying a lot more for non-generics anyway. Why?
(Bottled) water. Believe it or not, here in Southern California, where water is supposedly in short supply, I still pay one-half cent per gallon for the water that comes out of my tap. I suspect tap water is even cheaper in water-rich areas of the country. Despite that incredible bargain, I recently bought 20 gallons of bottled water that was approximately 200 times more expensive. I know. But like I tell my kids, “Do as I say, not as I do.”
(Faster) shipping. One of the hallmarks of financially responsible people is patience. Consider the enormous price premiums for expedited shipping. I recently purchased $10 worth of business cards from a company that offered next-day shipping for $54.25 and two-day shipping for $23.65. Meanwhile, the no-frills, standard shipping rate for people who were willing to wait an extra one to three days was only $5.77. Guess which option I selected.
(First class) airline tickets. Unless one is flying on an extended trip overseas, it’s hard for many people to justify the price premium of a first class airline ticket, which can often cost two or three times the price of an economy class fare. If the thought of sitting in a coach seat for any length of time is unbearable, consider premium economy class, which can often be had for a premium of $100 or less.
(Brand new) automobiles. Almost everybody loves the smell of a new car, but that doesn’t change the fact that, financially speaking, you canâ€™t beat a used vehicle purchased from a private owner. This is primarily because new cars typically lose upwards of half their original value over the first three years of ownership.
(Whole) life insurance. Unlike term life insurance, whole life insurance couples the term policy’s guaranteed death benefit with an additional investment product. Yes, whole life may sound like a better deal â€” the trouble is itâ€™s the least cost-effective option because you end up paying for both the insurance and the fees associated with the investment component. In most cases, you’re much better off buying term insurance and then investing the realized savings.
Remember, while it’s true that many times you get what you pay for, it’s also just as true that sometimes you don’t. The key to ensuring you always get the most bang for your buck is in recognizing the difference.
Photo Credit: Paulo Ordoveza