Cutting Costs on Something is Worthless IF…

On Monday I wrote a post about how loyalty is costing you money. It’s true – loyalty does cost money sometimes. But negotiating a lower rate on your cable bill – or slashing it altogether – is only half the battle. These efforts to cut your costs on specific things seem like great ideas, but the truth is that they don’t always have the impact you’d hope.

If you find this to be the case, I’ve got good news and bad news for you. The good news? There’s a simple reason for that. The bad news? You suck at saving money.

Addressing the Bad News

Yes, I said it: you suck at saving money.

Let’s use the example of cutting cable out of your budget. We’ll use our current cable bill as an example (it’s disgusting), and use our planned change to demonstrate why you suck at saving money.

Currently we have internet and cable TV through Comcast. We add on HBO, because, come on…Game of Thrones. Our cable bill comes to a grotesque $134 (and change) each month. Every single month I have to pay that silly bill, and I’m on a contract with them until May.

When May rolls around, we’re planning on canceling the TV portion. We’ve got ways we can watch our other shows so it’ll be a change, but really not a huge deal. We’ll keep Internet which should bring our bill to about $60/month after taxes.

Yay Savings!

Simple math says we’ve saved about $74/month, right?!

Well, not really. Not yet.

The issue with just cutting the cost is that if I’ve suddenly freed up another $74 from my monthly expenses, I haven’t really done anything with that money. It’ll just sit there and do nothing. If you suck at saving money, that will inevitably be spent on other stuff. Things you don’t need, things you can’t even remember you bought.

You know what’s worse than spending $134 on cable each month? Spending $74 on not-cable; some random stuff you don’t even know about.

Cutting Costs? Set Up a System

So how do you address your bad savings and spending habits? Whenever you cut a cost – particularly a recurring cost – set up an automatic transfer out of your checking account and into your savings account for the amount you saved.

If you just cut a cost but don’t tell your dollars where to go, chances are you won’t really be making any progress. It’s a great idea to trim back, but unless you’ve got some system in place to save the money you’d otherwise spend , it’s bound to fail. Even worse, you could potentially revert to your previous state and have the extra expense of that new $74 worth of stuff you don’t need or want or know about.

Setting up automatic transfers is easy at most banks. We use Capital One 360 and setting up a recurring transfer takes about 20 seconds of work, and can be adjusted at any time. Whenever we cut a cost, we’ll add onto that monthly transfer.

Got rid of cable? +$74 each month. Decided to get rid of Netflix for a while? +$10. Ditched Amazon Prime? $99/year comes to +$8.25.

Saving Doesn’t Suck

I think part of the reason people undervalue the impact of saving more money is because they don’t really practice this. They try to cut costs – and they often succeed – but then the money just flies out the window. Without the discipline to actually DO SOMETHING with that money, they don’t see any progress.

So what do they do? Instead of finding the reason they aren’t making progress, they say “to hell with this, I’m spending just as much as before! This didn’t save any money!” Then they add cable TV back into their lives, and spending even more money than before since they’ve picked up new habits.

Savings doesn’t suck, but if you’re just cutting costs, you aren’t saving – you’re just spending less on one thing.

Do yourself a favor, and next time you cut a cost, bank the savings systematically. It’s a virtually fool-proof way to make some progress on your savings goals.

Question:

How do you make sure that when you cut costs you’re actually improving your savings each month?

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10 Comments

  1. I’ve had many friends get a roommate to save money to turn around a buy a new car because they “wanted the new model and they’re saving so much by having a roommate.” I wish they would realize the impact of those decisions on their long-term financial situation.

    1. Haha wow, yeah. I mean I get why they think that, but you aren’t saving money if you’re spending money! 🙂 Sure they pay less on rent, but they pay more on a new car – and in all likelihood those things probably aren’t canceling each other out!

      Come to think of it, one of my old roommates did exactly that…

  2. It’s funny how tight of a line it is, huh? The idea behind expense-cutting is that it frees up more room to use your money in a positive way (ie. savings and paying off debt). For us it’s always been a challenge to both save and pay off debt at the same time. We’ve had to rely on our emergency fund before, so it’s always a good idea to pump excess funds to both debt and savings.

    1. Yeah it’s a fine line for sure. When you’re trying to tackle multiple goals like that too it makes it tough; part of the reason that folks like Dave Ramsey suggest just having a minimal Emergency Fund while focusing on debt. Problem there, of course, is that if you wind up having to use it you’re having to shift focus.

      They say personal finance is boring, but in the beginning parts of getting your situation figured out it is anything but!!

  3. This is one of my big concerns about coupons, I may be “saving” a few bucks, but does it mean I just spend that money elsewhere?

    I really liked J Money’s “Challenge Everything” series on Budgets are Sexy. He showed how he cut costs in many areas, but then how he put that savings into a savings account and tracked the funds that resulted from his cost cutting. It was a great idea to make sure the savings actually resulted in “real savings”, not just more spending!

    1. Yes! J$’s plans are great 🙂

      And yeah coupons are a slippery slope, IMO. They can be great if you use them wisely, but a lot of people use coupons to buy stuff they wouldn’t otherwise, because it’s “cheap”. Well yeah, but if you weren’t going to buy anything to begin with and this coupon changed your mind, you’re just spending extra money…

  4. Even though this seems like such an obvious point, it’s such a great one. We cut our Verizon bill 2 months ago now by about $50 per month, but we’re not doing anything specific with that $50 per month. We didn’t increase savings or investments by $50 each month. But now- I’m going to readjust the budget to make sure we do!

    1. Awesome! Glad I inspired some action. Thing is too, making that change should be super easy since you’re already used to not having that 50 bucks.

  5. That’s a really good point that you’re not actually saving that money unless you’re actually SAVING that money. I’ve never looked at it that way. If that money just rolls into your spending then it’s not actually saved money and you’re probably wasting it on something that makes you less happy than Game of Thrones 😉

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