Monday, March 27, 2006

Interesting Finance Article...


Cutting Expenses Doesn't Equal Saving Money
by Jeffrey Strain
Cutting expenses is only the first step to saving money

There is a misconception that cutting ones expenses equates to
saving money. While cutting expenses provides you with a great
opportunity to save money, you need to take an additional step
to actually make this work.

Cutting expenses is the first step in a two-step process. In
addition to cutting your expenses, you actually have to place
the difference between what you were paying and the new price
after cutting the expenses into a savings account (toward debt
reduction). While this may seem obvious as you read, many
people fail to do just that and wonder why cutting their
expenses hasn't resulted in more savings (or debt reduction).

What happens many times is that a person cuts expenses, but
then takes that money and places it somewhere other than their
savings (or against debt). How many times have you gotten such
a great deal on something that you felt it was okay to spend
some money on something else as a reward? When you decide to
spend extra money gained from cutting expenses to reward
yourself, the savings never materialize.

This is a much more common practice than you may realize. In
the fall of 2004 in New York, tests were conducted using new
supermarket scanning devices that showed that people who used
coupons ended up spending on average 8% more than folks who
didn't use coupons. A Washington University study conducted in
2002 found that for every $1 a person used in coupons, they
ended up spending an extra $8 in unplanned luxury items. One
of the studies authors, Ambar Rao, concluded the following:

"Steak, flowers, candy -- people were treating themselves
because they felt good after using coupons, and of course they
spent a lot more on the treats than they saved on the

The key to making your cost cutting effective is to make sure
that the money realized after making the cost cuts goes to
your savings (or to pay off debt). While small rewards can
help motivate you when making the cost cuts, they should be
well defined ahead of time (as well as their cost) and not
spur of the moment rewards.

Simply understanding that there is an unconscious tendency for
many people to spend more when they think that they are
cutting expenses can help you fight these urges of impulse
rewards and guarantee that when you set out to save money by
cutting costs, you succeed.

Jeffrey Strain is the owner of - a
website dedicated to saving you money and also writes the
daily updated blog at

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