Today’s guest post comes from Matt Bell, a personal finance speaker and author of two books, including Money Strategies for Tough Times.
One positive side to the recession is that there are lots of “deals” to be had. From cars to couches to cable TV subscriptions, just about everything, it seems, is on sale. But do bargains really save us money, or do they prompt us to spend more than we would otherwise? Here’s a look at the potential downside to some of the most common deals.
[See "Top 8 Money-Saving Websites."]
The limited time offer. The other day when I walked into our kitchen my wife told someone on the phone to hang on and then asked me an unexpected question: Would we want to go to Orlando sometime in the next 6 months? She had picked up the phone thinking she recognized the number on our caller ID only to be greeted by a telemarketer offering what sounded like a great deal: a three-night stay at a new property from a well-known hotel chain for $109, including breakfast. But we had to decide right then—no calling them back. And that lack of time to fully think things through is what often trips people up, as it almost tripped us up.
It really did seem like a good deal, and with another Chicago winter just around the corner, the thought of a few days in the sun this December was tempting. Then, in a flash of clear thinking, I did a quick mental calculation of how much of our vacation budget remained compared with all the added costs of this "deal" -- airline tickets, ground transportation, meals, etc., and it was clear that it didn't work.
Coupon sites. The Internet is filled with such sites. One that I’ve used several times is restaurant.com. The site’s everyday price for a $25 restaurant coupon is just $10, but they often run specials where you can get the coupons for 80% off—a $25 coupon for $2. However, when I recommend the site to others I caution them not to buy the coupons unless they were planning to go out to eat anyway. And I point out that the coupons come with minimum tab requirements of $35 to $50. I can't quantify this, but it’s a safe bet that such coupons prompt some people to go out to eat more often than they would otherwise and possibly to choose more expensive restaurants.
Rebates. This is one of the most common examples where a deal may not be a deal. Depending on the offer, rebates have been known to generate dramatic sales gains for companies selling everything from printers to cell phones. However, even rebates with the highest dollar values are typically redeemed at just a 50 percent rate. Buyers feel like they’re getting a deal, but whether they forget to fill out the paperwork or can’t make sense of the redemption rules, at least half of people eligible to get money back never cash in.
Value size packaging. You don’t have to shop are warehouse club stores to find extra large containers of everything from laundry detergent to tortilla chips. Buying big can certainly lower the price per ounce, which must be a good deal, right? Not so fast. I once heard a Wharton professor talk about research showing that people typically use more of a product during each usage occasion when it comes in a large container. When we’re running out of dryer sheets, we might tear them in half. But when we buy the “value” size package we’re more likely to toss in two at a time.
This is not to say that all deals are bad deals. It just takes some intentionality to make them work to your favor. Two of my favorite money saving web sites are Retailmenot.com (a good source of coupon codes) and Ebates.com (no-hassle rebates from over 1,000 stores automatically sent to you in quarterly checks). If I need to rent a car, for example, I’ll check to see if there’s a coupon code at the first site and then compare the potential savings to any rebate that might be available through the second site. Sometimes you can even take advantage of both forms of savings.
So, when is a deal really a deal? When you have a budget that tells you how much you can spend each month on clothing, groceries, and everything else. And when you find an offer that will help you spend even less.