Beware the Seduction of a "Free Lunch"
by Helen Young
10 Questions to Ask Before Splurging
During a recent commute, I heard a book review that set all my frugal senses tingling. The book was Predictably Irrational by behavioral economist Dan Ariely. It explores the many complex and, you guessed it, irrational factors behind our financial decisions. As a lifelong penny pincher, one of the author's conclusions in particular struck horror into my bargain-hunting heart. People will often give up something more valuable to get something else for "free." In other words, the perception of getting a deal can override economic reality.
However, the good news from the book review was the "predictable" part of the title. We can learn to understand the drivers of our irrational behavior and get better at avoiding them. This encouraging thought led me to reexamine my own family's spending behavior, and sure enough, there were plenty of places we were vulnerable to the lure of the free, not to mention the cheap. Below are some of the new financial rules I developed after examining our spending style more closely.
Don't fall for the hype. "No interest for 12 months!" "No money down!" "Outlet mall prices!" "Sale!" Sometimes these things are true (or partially true), but more often they're just marketing messages that can burn you if you don't understand what you're really getting. When I started doing more careful comparison-shopping, I discovered that some of the "sale" prices I was jumping at were actually higher than regular prices elsewhere.
Really do the math on everything. Like to purchase items in bulk like I do? This may not always be the cheapest option, especially if there's a danger you'll waste any excess. Interested in switching to a hybrid car to save on gas? My family has been planning to purchase one, so I was shocked to discover that a fuel-efficient regular car can sometimes be cheaper. (Be sure to figure in the extra premium charged for hybrids, any offsetting tax credit, and what you'd pay for gas over the years you'd own the vehicle.)
Don't buy stuff just because it's a "bargain." My favorite personal example was an old spherical clock (so no way to hang it up) that my husband paid $150 for on a work trip to India. "I bargained the street vendor down from, like, one trillion dollars!" he proudly declared as his rational. But until Antiques Roadshow swings through town and offers us our one trillion, we're out $150 for a ticking and now-dusty bowling ball that's cluttering up our dresser.
Understand how the party offering the "deal" is getting their cut. Rebates are a good illustration here; manufacturers can advertise a low price because they know that many consumers won't get around to submitting the rebate paperwork. Another example was a trip my family took to Florida a few years back. I assumed that purchasing all pieces of the vacation as a package (flight, hotel, food, and activities) would be the cheapest way to go. Turned out, we could save hundreds of dollars by booking the various components of the trip separately. All the package really got you was a hefty "convenience" charge.
Decide when quality matters. Even the frugal have things they care enough about to make spending some extra money worth it. If your kid won't wear the cheap jeans or your new electronics item breaks right away, you've wasted your money. For larger-ticket items, be sure to ask around for advice on brands and read plenty of consumer reviews before you buy.
Free-lunch seekers shouldn't despair. Excellent deals can be found on just about anything. Just remember in each case to investigate whether "taken for a free lunch" really means "taken for a ride."
Debt is preventing me from taking a vacation this year or the vacation I'd like to take this year! Tell us: Yes, debt is affecting my vacation plans! or No, we're going exactly where we want to go but we'd love to learn make our trip as inexpensive as possible!
Take the Next Step:
- Examine your spending style. Are there areas where the above financial rules should be applied? And remember that excellent deals can be found. Just be sure to investigate whether you're being "taken for a ride."
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