Saving money by considering cash flow
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
There are lots of reasons why it’s good to have some short term savings, a kind of cushion, if you will. Chief among them is that you won’t be overdrawing your checking account should your timing be a little off. But there are some other less-obvious advantages that can save you money.
The main one is that by having money in reserve, you can afford to “go without” some money in the short term to save money. A prime example of this is the various tax-free health savings accounts. By considering what your expenses are likely to be, and committing to cover them before they happen, you can save a significant chunk of change, depending on your tax bracket. This is the same idea behind various retirement options, too. Pay now to save later.
In our household, we’ve been using this idea to save money on recreation. One example is the health club. My husband is a semi-serious cyclist and wanted to keep in shape during the cold winter months, so we looked for a health club that offered cycling classes in addition to the weights that we should be using year-round. When we found the club we wanted to join, they quoted several different prices based on the term of the contract and the method of payment. Because we were willing to pay upfront for two years in advance, we are paying about half of the standard cost. Obviously this is only a good idea on something you will definitely use (we’re 6 months in and still going to the gym several times a week).
Here’s one that we’re planning on doing. Every year, our local ski hill sells season passes at an extremely low $199 per pass… but they only sell them at that price for one weekend. We just bought our passes for the 2006/2007 season, but we’re already thinking of 2007/2008. Here’s why: the ski hill runs a “cash card” sale just before they open (usually Novemberish, I think) where they sell these cash cards at 75% of their face value. Basically, get a $100 cash card for $75. These cards are accepted anywhere on the mountain and can be used to pay for lift tickets, lessons, whatever. What we’re focused on is that they can be used to pay for passes.
So come this November, we’re going to figure out what we will be spending in the full next year ($199 pass for me, $199 pass for Daniel, $120 for the lessons I intend to take, plus a little for food on the mountain) and we will buy a cash card with that full amount on it. In the end, we’ll be buying our passes for $150 each, my lessons for $90, and the overpriced food on the mountain for an amount that resembles a fair price. Sure, we have to plunk down $450 upfront, but we save a full $150 just by planning ahead.
The moral of this story? Whether you’re talking health care or retirement or recreation, you can often save a lot by paying upfront—so make it a priority to have the necessary short-term savings available.
Related Link: cash advance quick payday loan applications
My husband wants us to plan to put money away monthly in a ’save money’ or ‘good deal’ fund. This fund would be used when we come across ways that need money upfront but which would save us money (like bulk meat purchases, or deals like your cash card). I think this is an important concept and one which many people are never able to implement, leaving them always a step behind.
Misty, what a great idea!
Regarding the post, if you do your shopping at Wal-Mart, you can often bid on discounted gift cards to shave off a few percent from your grocery bill.
mbhunter, I’m sad to say that your intelligent suggestion had never occurred to me (even though I’ve written about buying gift cards before!). Thanks for posting it! I am now the proud owner of a $500 gift card for Wal-Mart (where I do all my grocery shopping) that I bought at a discount on eBay.
Once you’re tuned into bargains based on paying up front you see them everywhere. Examples include: saving on car insurance by semi-annually instead of monthly; discounted price on wine for buying by the case rather than the bottle, bulk discount for car wash tokens, cell phone minute plans, etc. The list goes on and on.