Sometimes you have to spend money in order to save money. On the surface, this statement doesn’t make much sense. However, during the past month I have come to understand what it means. Being involved in the Savings Challenge, we have been trying to save as much money as possible. We’ve set and re-set our budget. We’ve cut back on dining out. We stick to our list at the grocery store and we no longer buy things just because it’s a great bargain. All the while, we put as much as possible into our savings account.
However, one thing I’ve learned is that just because we’re saving money in our account, we’re not necessarily “saving money.” Let me clarify. Like most people, we carry credit card debt. We paid a bit above the minimum payment amount so that we were able to put more money into our savings account. Unfortunately, in the current economy, the interest we earn is substantially less than the interest we pay. Paying $10 a month in credit card interest to allow us to deposit an extra $5 a month in a savings account didn’t make sense to us. We found that putting that money toward the credit card saved us more in interest payments than we would have saved if we had put the money in our savings account. Eventually, with one less bill we were able to put the entire amount we were paying on the credit card into our savings account. Now, we’re saving money!
Another way we were faced with “spending to save” was with our car. We were looking forward to saving the money we were no longer spending on day care, but now it was starting to go toward car repairs. Our car was eight years old with more than 105,000 miles on it. It was beginning to need repairs on a regular basis. It really wasn’t worth the amount of money we were putting into it, so we had to think about replacing the car. We’ve always purchased used cars, but we were able to take part in “Cash for Clunkers” and were able to buy a new car for the amount we were planning to spend on a used car. Yes, we have a car payment now, but it doesn’t affect our budget because it’s the money we were spending on day care and we still meet our monthly savings goal.
So now you know what I mean by “spending to save.” Definitely, make sure you deposit a set amount of money into a savings account every month but take the time to figure out where you should put this money so it’s the most beneficial.
In what ways have you effectively spent money to save more money in the long run?
This is an entry from the 2009 Connex Savings Challenge Blog, a place where you can keep up with the Savings Challenge families and they can share great financial tips, ways they are saving and budgeting and much more! For more blog entries and information on the Connex Savings Challenge, visit http://www.connexcu.org.