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