Debunking the 'latte factor' and other money-saving myths

[Will cutting out your daily caffeine indulgence save you from money woes in the long run? Experts don’t think so.]

A few months ago Rona Birenbaum’s daughter asked for the latest iPhone so the certified financial planner decided to compare the price online to the cost of getting it through her service provider.

“With taxes it was almost $1,000 to buy outright, I almost fell out of my seat,” says the founder of Toronto-based financial planning firm Caring for Clients. “But then I go to the service providers – to get the phone for $299 flat you had to then sign up for a certain data plan.”

The data plan, Birenbaum explains, came with a two-year term and so she multiplied the monthly costs and even with the discount it costs a couple hundred dollars more.

“There’s a certain amount of pride and satisfaction that comes from getting that (deal) – you’re saving money on one hand and paying more on another – so its more of a psychological exercise than anything grounded in reality.”

It’s akin to the pervasive myth that boosting your budget is as simple as cutting out that weekly latte.

“It isn’t about spending less, it’s about spending well,” says Birenbaum.

Yahoo Canada Finance took a look at some of the most pervasive “savings” myths:

In-store loyalty credit cards

While these types of store-branded credit cards often offer spending rewards and special bonus days, store credit cards tend to carry higher interest rates than traditional credit cards with stiffer late fees and penalties. Case in point: Home Depot and The Brick have interest rates sitting around 28.8 per cent and 29.9 per cent versus the 19 per cent or lower purchase interest rate on a standard credit card. And missing a payment on a store card offering a deferred payment plan – that “No payment for 12 months” scheme – could trigger 12 months of interest.

Monthly insurance premiums versus annual

“Most people do not know that paying a monthly premium for their life insurance or disability/critical illness insurance is actually about a nine per cent premium for the convenience of paying monthly,” says Birenbaum.

If they paid annually they’d get abut one month free a year, adds the financial planner.

Warehouse memberships

With annual memberships to somewhere like Costco ranging from $50 to $100, there’s bound to be some attraction. For anyone who actually owns a membership can attest, just being in the presence of full wheels of Beemster’s Gouda cheese at deep discounts is worth the price of admission. But in reality, is that membership really worth it? If you’ve got a family of five or more, you can most likely put that plastic to good use stocking up on novelty-sized boxes of pita chips or “his-and-her” sets of snowshoes. But for lone wolves, you’re apt to end up with a bunch of stuff you don’t need and a little heartbreak when the mold spores devour the wheel before you get to it.

Free shipping

It’s the perfect crime – that double verifying system that e-tailers seem to have on lock-down: “are you sure you don’t want free shipping? You’re only one product away.” Let’s be honest, they realize they can’t get you with the bright coloured sale signs because there are no digital aisles to place end-caps on but online sites like eBay, Etsy and Amazon have you figured out: toss a couple options for things you’d like and a promise of free shipping if you spend a bit more and you’re likely to take the bait. Don’t do it, free shipping is apt to save you a couple bucks but spending more defeats the purpose of saving, does it not?

Chasing gas prices

And finally, the game we all like to play with ourselves called “chasing the gas price.” Sure, that Esso on the outskirts is offering a better deal but it’s 20 minutes away. So when you account for traffic (i.e. your time) and the cost of gas to get there (i.e. your savings) that deal doesn’t look so attractive now does it?