The following post is from Derek Sall, owner and operator of Life And My Finances. Derek writes to help his readers get out of debt, save money, and become wealthy.
Are you great at sniffing out bargains? I bet you take great pride in finding a steal from time to time and then can’t wait to tell your friends. But what if I told you that you might actually be losing money when you buy something on sale? Is that even possible? It sure is. You just have to have the right mentality.
Do You Truly Need The Item?
Retail stores are fantastic at getting us excited about a sale. They haul out the big red sign and plop the special item right in the middle of the store. The sign says that these products are 30% off their original price. That’s a pretty good deal right? Well, that all depends. Did you need the item before you walked through the doors? If not, then chances are that it isn’t all that great of a deal for you. If there were no sale, then you probably wouldn’t even have looked twice at this special product. Therefore, instead of spending $0 on that product, you are now spending $20, $50, or maybe even $100! Whatever the amount, it is 100% more than you were going to spend on that item before you saw the sale. In this instance, you should absolutely not make the purchase. You’ll save more money that way.
The Sale Might Really Not Be a Sale
There are certain stores in my area that are notorious for raising their prices before they have a sale. Of course, not everyone knows that, but I have definitely taken notice. While I’m pretty sure there are laws against it, some stores will actually raise the regular price of a few items by 30%, and then will call it a clearance sale and mark it 50% off. In actuality, the item is actually closer to 20% off if you compare it to the original retail price. Just because something has a huge red tag on it does not necessarily mean that it is a good deal.
Better deal? Go for Groupon. Right now, they’re offering 30% off local deals. Stock up for Christmas!
You Might Be Wasting Your Good Deal
Let’s talk about groceries for a minute. There are many different types of stores where you can get your groceries. You could buy your food from a Super Target, from Walmart, from Costco, from an upscale grocer, or maybe a discount grocery store. Some offer better deals than others, but buying in bulk seems to be a great way to save money…sometimes.
My friends are married and have no children, and they have a membership at Costco, a big box retail store. They constantly rave about this store and all of the great deals they find there. While I don’t doubt the deals, I do doubt that they are actually saving money.
You see, whenever I go over there, their cupboards and their refrigerator are absolutely stuffed with food. As I pull something out to eat, they often tell me, “I don’t know if that is still good. It has been in there for a really long time!” Based on the frequent reminder that their food might be spoiled, I estimate that 25% of their food goes to waste. So, if they are saving 10% more than me on each items, they are still losing out by 15% in the end because most of their bulk purchases are going into the garbage!
You Must Live by a Budget
You might not be a spender by nature, but a budget can still help you out quite severely. In the case of the wasted food we just discussed, a budget would help you understand how much money you were spending on food each month. Buying in bulk might cause you to spend quite a lot in one particular month, but that means you should be spending very little in the following months. If you don’t see this happening in your budget, then you are probably wasting money.
Budgeting is obviously a good idea, but it is not always the easiest thing to do. You must keep up with your spending and properly categorize your expenses in order for it to help you. If this is a challenge, then I would suggest setting up an account with Mint.com or PersonalCapital.com. These are excellent tools not only for budgeting, but also for tracking your investments and your net worth!
Until you set up a budget, you really won’t know if you are losing money by purchasing a sale item.
How about you? Have you ever thought that you could lose money by buying something on sale?