Sometimes, spending more is cheaper

Posted by Tad Johnson - Mar 17th, 2008 at 19:03

As a vicenarian, and reader of this site, you’ve heard the same adage before : spend wisely, save money, and you’ll end up rich. This equation works well, but that first point is often the hardest to master.

suit.jpgOne common mistake in spending wisely is thinking to always spend less. In many cases, spending less is actually counter productive–to put it another way, you can actually save money by spending more.

The difference, as you might guess, is quality. Often, you’re faced with the choice of spending $5 on a cheap item, or $10 on the more expensive version. You might reflexively reach for the former, and you might be wise to do so. The key question is, will the more expensive item last twice as long (or longer)?

Trouble is, it’s not obvious which items are worth the premium and which aren’t. I’ve written on these pages previously about generic brand food, which is an example where the cheaper version is a great bargain. By contrast, men’s business ware is an area where spending more can save you money in the long run. (I chose men’s clothing over women’s because that’s what I know. By all means, please educate me in the comments.)

When I was graduating from college and ready to start interviewing, I tried to save some money on buying nice clothes. I bought a suite, some shirts, and a few ties at the Men’s Warehouse. Big mistake! Sure, I spent less than I would have at a nice department store, but I ended up with less-than-high quality clothes. The shirts wore out quickly and the slacks already busted a belt loop. (And the tailoring wasn’t exactly top-notch either!)

Fortunately, a good friend of me steered me in the right direction. Since I started working, I’ve been buying dress shirts at Brooks Brothers. I pay a little more for each shirt, but they last much longer, fit well, and are visibly well made. By spending a little more up front, I’ve easily saved money over the long run.

What are your suggestions for buying quality vs. price? Share your experiences in the comments below.

The dollars and cents of saving energy

Posted by Tad Johnson - Mar 6th, 2008 at 21:03

The green movement is [finally] gaining traction in the U.S. Driven in part by $100 oil and climate change science, companies are actively marketing to a green conscious consumer. In turn, the consumer is starting to prefer products that require less energy. In a moment of sublime corporate cliche, this is a true “win win”.

Most of us pay between $0.12 and $0.15 per KWh (killowatt hour) of electricity. This is a somewhat abstract figure; let’s see how it relates to real life.

Above is a graph comparing standard incandescent and compact fluorescent (CFL) bulbs. You can see that the dollars and cents really start to add up; over a month a CFL bulb will save you over $4 in electricity costs. (In the interest of full disclosure, this is assuming the bulb is on 24 hours a day; hopefully this is not the case. Even so, you get the idea.)

green-basics-cfl-white.jpgThe savings above reflects the energy savings of one bulb. Chances are, you have at least 15 light bulbs in your apartment/condo/house that could be swapped for CFLs. Not only are you reducing the environmental impact by cutting energy usage, you’re saving money as well. Excellent!

Of course, the savings don’t stop there. Turning down the thermostat by a degree or two in the winter (and up in the summer) will yield more savings. Reducing your hot water usage will likewise save money in the cost of heating that water. It’s surprising how easily you can save money on energy costs with a minimal effort.

Not only will you be saving money, but you’ll feel good about yourself for doing your part to cut energy usage. Fantastic!

Save on groceries : buy the store brand

Posted by Tad Johnson - Mar 4th, 2008 at 23:03

Here’s a fun little secret about groceries : nine times out of ten, the name brand and the store brand product are virtually identical. The only real difference is that one costs 20% more. In fact, most packaged food products are processed at the exact same facilities using the same ingredients. The only thing you’re buying by paying more for the name brand is just that–the name.

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As with all things, there are some cases where the flavor or quality is noticeably different. Cheerios and the generic equivalent are going to taste the same (toasting oats is not rocket science). The store brand Honey Bunches of Oats might not have the exact flavors or ratios down, so this might taste a little different. Even so, is it worth the added cost?

Knowing full well that their products are generally indistinguishable from the cheaper store brand, the major food companies spend millions (or is it billions?) every year on marketing. There are some very smart people getting paid very well to convince you that Pop-Secret popcorn is better than the generic. The irony to this is that the reason they charge you more is (in part) to cover their advertising expense. Since the store brands never advertise, you pay only for the food itself.

store-vs-brand.jpgIn the case of over the counter medicine, the savings are even better. Once a drug enters the generic market, you can buy a store brand of the exact same drug for 50% or less. It’s truly remarkable.

Armed with this knowledge, think carefully next time you’re shopping for groceries. You just might discover that you can save an extra $20 a week by switching to the store brand. And as we know, that makes a nice addition to your Roth IRA or 401(k).

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