For those of us focused on saving money, the idea of spending it may seem a bit uncomfortable, especially if our personal finances seem perched on or near the edge. Nevertheless, there are times when spending money now can help us save more money over the longer term.
To do this, we need to hone our skills at gazing into the “crystal ball” to see the range of opportunities as well as risks; opportunities for success as we would like, and the risks associated with things not going quite so well.
I certainly don’t consider myself to be a pessimist, I rather think of myself as an optimist and a realist, but it seems to me that success generally takes a bit of work, whereas failure can often come along and bite us on the backside with a bit more ease. After all, it’s no effort at all to allow things to happen to us, whereas success requires that we make it happen. In the end, perhaps it’s all a matter of personal perception, but for most of us, we’re eager to welcome success while we tend to cringe at the idea of failure or setbacks.
I think the idea of spending money to save it will all become much clearer with an example. Before we look at an example, let me highlight four central ideas at work here when we think of spending money to save money. Think of these as guidelines for decision-making:
- Take the long view. Think about the payoff over time, much like an investment in your future.
- Be reasonable. Not to contradict the point above, but the idea of investment can sometimes be one great big rationalization for spending money. Being reasonable means you have a sound reason for doing something. One of the ways to be reasonable is to focus on needs, and avoid being lured by desires.
- Think things through. Many people have a difficult time thinking “beyond the end of their nose” as the saying goes. The better you’re able to mentally “tabletop” a situation, from start to finish, the more reasonable an investment you’ll make in terms of meeting your needs and best interests, and the better it will dovetail with the longer view of things in your life.
- Can you afford not to? It’s often helpful to imagine you’re already on the other side of an event in order to appreciate the costs and inconvenience associated with it. It’s often a matter of imagining yourself in an undesirable future and then ask what you would have given to avoid the situation. That often puts cost and value in better perspective.
With these central ideas in mind, let’s look at a real life example of when spending money can save money, in light of opportunities for success and the potential to avoid costly consequences of failure.
Many years ago I went skiing with friends from work. There were six of us going, and one of the guys volunteered to drive the group. I knew his vehicle to be quite small for a party of six, but my main concern was how prepared he was to make the trip into the mountains during a time when we could easily face treacherous driving conditions. As the time approached, it became more clear that we were expecting snow, and he had no snow chains…and no interest in taking any along. In addition, he characterized the tread on his tires as “okay.” I immediately insisted that we take my car, for it was a large sedan and would be comfortable for the six of us, and my tires had good tread depth. And, I knew the owner/operator quite well…he’d have snow chains and other emergency supplies along just in case. 😉
The day arrived and off we went. As I drove up near the summit of the mountain, we saw signs that snow chains were required, so we stopped to have them installed. The gent who was originally going to drive us immediately offered to pay the $10 installation fee to have service providers alongside the road install the chains. I think this was his “you were right, now please don’t say I told you so” gesture. After a successful installation, we drove up to the chain inspection station before proceeding, without incident, through the heavy snow to our destination.
After we arrived, everyone in the car expressed gratitude for having made it through the challenging weather conditions. To me, that was a sign of just how tense my passengers had been throughout our trip in the deep snow. I can’t say that I wasn’t a bit nervous, but knowing the degree to which I had prepared for the trip, other than just tire chains, I was quite confident of success. As it turned out, we were one of the last vehicles to be allowed through the pass. Even four-wheel drive vehicles were being turned away because of the heavy snow accumulation.
If I hadn’t spent money on tire chains, we would have had to turn around, travel back about 35 miles, and stay at a motel for the night…a much larger expense (for each person) than the cost of the tire chains alone. In addition, there would also be a cost in terms of wasted time and fuel, and no doubt we would have all gone out to eat that evening which would have made not getting to our destination all the more expensive.
So, lets’ look at my suggested guidelines for decision-making and how they were applied in this example.
Guideline #1: Were my purchases of tire chains and other emergency supplies done with respect to the long view? Yes, without a doubt. Purchasing tire chains, leak stop, a gallon of coolant, spare windshield wipers, etc. were a no-brainer in this respect. They would stay with the car for the duration that I owed it, they provided value in terms of being prepared, and provided peace of mind in the event that something might go wrong.
Guideline #2: In spending money on emergency materials and supplies, was I doing something reasonable, or was it something more properly characterized as unnecessary or excessive? In my mind, it was all quite reasonable since foul weather was forecasted, and I was responsible for my safety and that of five others. To be less well prepared in the face of expectations of snow in the mountains would have been irresponsible, and I have always had a difficult time characterizing irresponsibility as reasonable or rational.
Guideline #3: Did I properly think through the situation before making a decision? I think I did well enough on that score. It’s generally been my experience that people aren’t well prepared when it comes to many events for which they should be. In the above example, it was clear to me that snow in the mountains was an eventuality to be ready for, and not an emergency situation to react to. For me, it wasn’t difficult to see that I needed to be ready for things that could go wrong, including several possibilities like a flat tire and throwing a fan belt, all of which had nothing to do with the snowfall we were expecting.
Guideline #4: Could I afford not to spend the money? Again, putting myself in the imaginary position of being challenged by a heavy snowfall or some other mishap along the way, it was clear to me that I didn’t wish to find out the answer to that question after the fact. If we had become stranded in the snow or had to turn back and shell out motel money because of my lack of preparation for what was likely to occur, how could I explain that to my passengers as anything other than a lack of care and concern for their well-being? The added expense, inconvenience and possible danger might have been something that was tolerable, but there’s a big difference between something that’s tolerable and something that’s desirable. I might choose to afford the consequences associated with taking a risk, but I couldn’t make that same assumption for my five passengers.
The concept of spending money to save money can be applied to many and varied scenarios that we might encounter on a daily basis. Consider the following alternatives, and think about: the long view; reasonableness; thinking things through; and, whether you might choose to afford the potential outcome.
- Replace the weak car battery now versus requiring roadside assistance later.
- Invest time and effort to find a new job versus staying in one that appears to have a questionable future.
- Spend money to install physical security measures at your residence versus coming home from work one day to a burgled home.
- Invest in preventive medicine versus seeking a cure for an illness that has settled in and now requires more expensive corrective measures.
- Install energy saving features in your home versus paying more each month for energy, for many years to come.
- Pay more for adequate insurance versus learning about inadequacies in your policy when you experience an uncompensated loss.
- Keep ample fuel in your tank versus running out in an unanticipated lengthy traffic delay.
- Spend money to stock up on extra food and supplies versus spending money on fuel required for more frequent runs to the store for your basic and daily needs.
Perhaps this is a long way around getting to the point of saying “An ounce of prevention is worth a pound of cure.” I suppose I could have stated that upfront and been done with it, but you’re probably here for a bit more than just another bromide. I could have also simply said, “Pay me now or pay me later.” As we all know, it’s the details of implementing such concepts that vex us, and what we often lack are good examples for reference, and meaningful guidelines for making better decisions. For many of us, if there is ever a time when we need help making decisions about our personal finances, it’s likely to be times when we need to invest in our future, while making certain our investments are reasonable and necessary. It’s a balancing act to be sure.