Sunday, June 10, 2007

Smart Spending Builds Wealth

Spending money can help to build wealth--if you spend the right way. Buy things when they are inexpensive. If you like tuna, wait until it goes on sale and buy a dozen cans for 1/3 or ½ off. As for meat or poultry, buy several pounds on sale and freeze what you don’t eat right away. If you like whole wheat bread, buy the brand that’s on sale. At most grocery stores, there will a dozen brands of whole wheat bread and one or another will usually be on sale every week. Also, read the nutritional labels. Sometimes, the supermarket’s generic brand has more nutritional content than more expensive and heavily advertised brands (no, not a joke). If you can get over the image problem, buying generic may be cheaper and better for you.

The next time you’re near a cheap gas station, fill your tank up completely. Then, top off at less expensive stations, even if you still have a half a tank. That way, you’ll always buy less expensive gas. Don’t wait until your tank is almost empty and you have to buy at whatever station is nearby regardless of cost.

On a larger scale, don’t buy expensive clothes until they go on sale. All stores have sales. Be patient and get suits, shirts and ties for 30%, 40% or even more off. If you want a large, flat screen TV, wait until a major holiday with a three-day weekend. The big box stores often drop prices to draw customers. Or find a discount outlet, either at a strip mall or online, and buy below the nationally advertised price. On an even larger scale, pay cash for your cars if you can. You may be able to get a very good price on a new car by asking for quotes from the dealer’s Internet departments. See our blog about buying a new car this way:

When it comes to your credit card, don’t carry a balance over from month-to-month. Once you start rolling over a balance, the interest and other charges become a part of your financial life. If you pay off each month’s balance, you are effectively getting a loan at zero percent interest. That’s bargain basement credit. (Don’t feel sorry for the credit card companies—they ding the merchant a percentage of each charge, so they make money anyway.)

Think of smart spending as an investment. When you buy tuna at 50% off, you effectively make a 100% profit, because you save as much as you spend. When you buy a suit at 35% off, you effectively make about a 50% profit. The amount of money you “make” on a dozen cans of tuna this way is a few dollars. But if you approach all your spending this way, you could save hundreds and even thousands of dollars a year. Assuming you have a 50 to 60 year adulthood, your lifetime savings can amount to tens of thousands, and maybe more than a hundred thousand, dollars. Invest the savings, and you’ll notice an improvement in your retirement. To learn more about the power of compounding, go to our earlier blog at

This technique is most effective if you don’t buy when prices are high, and then buy in quantity when prices are low. Also, don’t buy things on sale simply because they are on sale. Use sale prices to your advantage, and purchase what you would buy anyway—when prices are low.

In order to buy things when they are inexpensive, you have to have some extra money around. An $800 charge for suits, shirts and ties at a sale may cause an unexpected jump in your credit card balance. It takes money to make money, even when we're talking about smart spending. So keep some cash on hand to cover these uneven expenses. How much you keep depends on your spending needs. A couple thousand dollars may be all you need for most household expenses. Obviously, more would be needed for something like a large high definition flat screen TV or a car. Set aside some money for spending capital. “Buy low, sell high” is an old adage in the investment business. Buying low is also a good way to spend.

Crime News: Here’s a criminal twist on a shopping list.

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