Many financial crossroads can create an itch to spend money when leaving it in savings could actually be the better option. Motivations like fear and envy can create the itch, but so can the urge to simply do something when you have the opportunity, as opposed to doing what feels like nothing.
Stockpiling money in a savings account can get increasingly difficult as the funds accumulate in your account and you are facing a material desire, or being presented with an exciting, “once-in-a-lifetime” investment scheme. ‘Doing nothing’ in certain circumstances, though, could save you a great deal of money in the long run – when you are in a better position to scratch that spending itch.
Buying a House as Soon as You Have a Down Payment
A major item atop many consumers’ list of desires is home ownership. As your friends and colleagues purchase cars and homes, you may find it increasingly difficult to refrain from translating your wants into needs.
Depending on the future whims of the housing market, sinking all of your savings into a home may not be the wisest choice. This interactive rent vs. buy tool from the New York Times could help you determine if and when it would be wiser to “do nothing” and hang onto your savings.
Signing Up for Insurance on Certain Products
Insurance can be bought for just about anything, like a mustache or your Fantasy Football team. All sorts of ‘what if’ scenarios can be used to convince you that the extra monthly or lump sum payment is worth it.
On certain products, though, you will save money by ‘doing nothing,’ as opposed to purchasing insurance against the risk of a small likelihood that it will actually be needed; you can do so prudently if the potential loss is small enough that you can “self-insure” against it.
For example, insurance on cell phones can usually be bought for around $5 per month, totaling $120 at the end of a typical 2-year contract. If you double or triple that cost for your spouse and/or child’s phone, you are talking about a sizable expense.Many cell phone insurance plans, however, include fine print that prevents you from saving the money you thought you would in the event of loss or damage.
By forgoing the insurance, you will have saved at least the premium costs when you replace your phone (which happens every 2-3 years on average, anyway).
Subscriptions and Memberships Are Up For Renewal
How many magazines, newspapers, Internet tools, gym memberships, or other services are you currently subscribed to, but no longer use on a regular basis? And how many are you paying for when a free alternative could be available that would make for a suitable substitute?
Evaluating which subscriptions and memberships you could live without, and ‘doing nothing’ when it comes time to renew them (if you are not signed up for auto-renewal, of course!), will free up that money for you to apply to savings each month.
In the circumstances mentioned above, as well as in many others, a prudent financial strategy very well could be to ‘do nothing’ and resist the impulse to spend money. You may be sacrificing an immediate material gain, but substantially larger savings (and capacity for future purchases) could be the greater achievement in the long run.
This article was written by Patrick Russo.