Posted by Mike Smith :: October 4, 2008 @ 10:01 amThey say that it takes money to make money, and often times that holds true. But can spending money save you money? In many cases, it can. Monitoring the costs and the savings are a great way to continually ensure that paying to save makes good financial sense.
Paying to save comes in many different forms. One example would be to join a Wholesale Club like Sam’s Club or Costco. For a yearly fee, you are able to purchase products at discounted prices. Another example would be joining Amazon Prime. For a yearly fee, most purchases from Amazon get free 2-day shipping, or reduced price overnight shipping. A final example is joining a movie rental service like Netflix. For a monthly fee, unlimited movie rentals are available.
In all cases, you’re better off paying to save if you pay less than you save. That may sound obvious, but the calculation still needs to be done. When performing your analysis, make sure you compare the costs you would have incurred had you not paid to save instead of comparing how much you actually saved. This may seem counter-intuitive, but once you pay to save you may end up making many more purchases.
As an example, when deciding whether a Netflix subscription is worth it, compare the cost of the subscription to the current amount you spend on movie rentals to see if you’ll save money. If you were to instead compare the subscription cost to what all the movies you borrow from Netflix would have cost to rent, you’ll skew the results. The fact is that you wouldn’t rent as many movies if you had to pay regular rental prices. In a similar way, you may find that once you join a wholesale club, you do get great prices but you start to buy so much more that you end up spending more as well.
If the goal of paying to save is to end up spending less, you’ll need to keep track of your costs and your savings. You can certainly save money through many pay to save programs, but unless you’re careful they can easily end up costing you more.
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