Money saved

[liveandchi]

I know this is going to sound stupid, but when is money really saved? I'm having a hard time understanding this.

If I go to the store and I buy groceries and I use coupons that are worth $5.00, did I really save $5.00? Or did I not spend it?

If I spend that $5.00 on something else we need, does that mean it isn't saved? Do I have to put it in a bank in order for it to be saved?

I'm asking because I feel like I have made cuts to our budget and we should be saving money, but we still don't have any. So is the savings real or imagined?

[terry1156]

Re: Money saved

There are several questions that seem to have been jumbled together.

When you first beging to get your finances under control, the savings don't usually end up in your bank account. They go to other things that you were previously putting on credit cards. So even though you aren't seeing savings in an account, these little savings go to make sure you aren't increasing your debt.

Once you get spending down to below your income, your "savings" will go to pay off previous debts and still won't be seen in a bank account.

Once all your debts are paid off, you'll see the amounts you saved show up in your saving accounts.

[crosses]

Re: Money saved

The $5 is saved as long as you don't spend it on something you don't need. I have friends that buy expensive dresses that they don't really need at 50% off, then spend the 50% they saved on a sweater that is 25% off and think that they saved money.

[akaivyleaf]

Re: Money saved

If you had the 5.00 BUDGETED to spend on groceries and you didn't spend it you saved it. Now you can budget the money to some other entitty. You can see the savings when you use the envelop system.

For example you put 50.00 in cash in an envelop earmarked for groceries. You put X amount in an envelop for clothes, X amount in a different envelop for bills....you get the picture. After you pay those obligations by cash, at the end of the month, whatever is left in the envelopes is a real and tangible savings. You can then take those savings and pay extra on a bill.

You're not so clear on seeing a savings if you don't have the cash in hand or if you fail to write down your obligations. For instance if you just say in your mind I'm only spending 50 bux on groceries, and you spend the 45.00 by writing a check and using coupons for the other 5, you don't see the savings because its a checking account and the money is just a written transaction in your register.

[Tree0164]

Re: Money saved

Pay yourself first! Or put it towards your credit card first since you are paying off debt.

I know some that use the store cards see how much they save on the bottom of their receipt and then put that money saved in their bank account.

Good luck!

[liveandchi]

Re: Money saved

OK, I think I will try the envelope system and see if that helps me to understand better. Is there a certain way to set up this system?

[akaivyleaf]

Re: Money saved

The most imporant part of the envelope system is to be honest with yourself if it is to work. Just get regular envelopes and write on the outside what each is for. Put the cash in the envelopes and replace the cash with receipts for those line items. Above all, don't take money out of an envelope and move it to another envelope, you've defeated the purpose. Also because of the society we all live in, don't carry around the envelopes in your purse unless you're conducting business with those envelopes. Carrying cash is a somewhat dangerous proposition these days.

[liveandchi]

Re: Money saved

I'm already having trouble. Some envelopes have more money than they need and others are already empty. If I can't switch money, what should I do?

[terry1156]

Re: Money saved

Oh, there was just another thread started on this and I answered this there. Take note where you came up short so next month you can make better projections.

[PrincessPerky]

Re: Money saved

This is the first month you did this right? So you can try to be creative and manage without switching envelopes, but change things around next month. If you let us know which ones are empty we can prolly help with ideas to get by.

[amomof4]

Re: Money saved

I suppose it's a savings when u were going to buy the item anyway. Amy D covers it in the tightwad gazette. U can save $100,000 by not buying a Mercedes, but since u were not going to buy it anyways, u really didn't save. If you were going to buy the groceries anyways & u used coupons, then it was a savings.

[JLP]

Re: Money saved

I read in a book (a very good book, by-the-way) an example of how people think about money:

Say you are going to buy a lamp. You go in a store and you see the lamp for $100. You know there is a store down the street that has the same exact lamp for $60. Do you go to the other store and buy the lamp and save $40? Most people probably would.

Now, say you are buying a dining room suite. The price at the store you are in is $4,600. You know you can get the same suite for $4,560 down the street. Do you go to the other store to save $40? Most people say no.

Why? Why is that? You are saving $40 either way. Why do we value the $40 saved on the lamp greater than we value the $40 on the dining room suite?

I'd be interested to hear what you think.

Oh, the book is called "Why Smart People Make Big Money Mistakes and How to Correct Them" by Gary Belsky & Thomas Gilovich. It is a MUST READ!

JLP

oooh, I noticed I'm a THIRD grader now!

[DivaJen]

Re: Money saved

I read in a book (a very good book, by-the-way) an example of how people think about money:

Say you are going to buy a lamp. You go in a store and you see the lamp for $100. You know there is a store down the street that has the same exact lamp for $60. Do you go to the other store and buy the lamp and save $40? Most people probably would.

Now, say you are buying a dining room suite. The price at the store you are in is $4,600. You know you can get the same suite for $4,560 down the street. Do you go to the other store to save $40? Most people say no.

Why? Why is that? You are saving $40 either way. Why do we value the $40 saved on the lamp greater than we value the $40 on the dining room suite?

I'd be interested to hear what you think.

Oh, the book is called "Why Smart People Make Big Money Mistakes and How to Correct Them" by Gary Belsky & Thomas Gilovich. It is a MUST READ!

JLP

oooh, I noticed I'm a THIRD grader now!

Interesting idea! Do you think people unconsciously think of it proportionally, when as you pointed out, $40 is $40?

Congrats on your promotion, lol.

[JLP]

Re: Money saved

The authors claim that people tend to value dollars differently depending on the size of the purchase. In other words, they subconsciously look at it in percentage terms instead of dollar terms.

Anyway, I thought it was interesting.

The book also talks about why people get into trouble with credit cards.

JLP

[Tree0164]

Re: Money saved

Excellent point

Money saved is money saved no matter what the amount is.

Another book to add to my reading collection.