Financial Fallacies that Many of Us Make

If you’re reading a personal finance blog, chances are you do your best to be conscious of the money you spend and make good financial decisions. However, many well-intentioned and frugal consumers can fall for a number of false beliefs or illogical mistakes that I like to call “financial fallacies.” The first step in correcting these misguided notions is to identify them.

Perhaps the most common fallacy is purchasing an item just because it’s on sale. While the feeling of getting a “deal” on something is fantastic, the fact is that many of us actually waste money just to take advantage of these markdowns and special offers. A good rule of thumb is that: if you wouldn’t buy the item at full price, don’t buy it just because it’s on sale.

There are some exceptions to that rule. For example if you were in the market for a new vacuum cleaner and the Dyson was marked down to match the bargain brand, it would clearly be a good idea to purchase the higher quality item. In fact another fallacy is thinking that you’ll save money by always buying the cheapest products. While some discount brands can be just as good as the name brand, in some cases you could end up spending more by paying to replace low-quality goods. This isn’t to say you should buy top of the line either, but make sure you’re buying items to last. Bottom line – do your research before making a purchase decision based solely on price.

One small trick that retailers used was ending prices in “.99” so a consumer would think they were spending less. While few are still fooled by this pricing when it comes to grocery items or other small purchases, many of us are guilty of rounding off numbers while buying bigger ticket items like cars or houses. The problem is that in these cases the difference could be hundreds if not thousands of dollars. As tempting as it may be to go “just a few hundred dollars” over your budget when buying a car, you should treat that amount as you would in any other situation and stick to your guns (or negotiate it down).

Similarly when many of us try to cut expenses, we start with the small changes like bringing lunch to work instead of going out. Another common cost cutting move is buying generic grocery items instead of the national brands. These changes are great and will add up, but don’t forget to look at some of your larger bills and try figuring out how to reduce them.

For example if you haven’t changed your car or health insurance provider lately it may be time to shop around again and ensure that you’re getting the best deal. It’s also worth checking your family’s average cell phone usage and seeing if there’s a better/cheaper plan you could be on. If you’re really serious about saving money, it may even be time to evaluate your current home or apartment and consider downsizing to save money on rent or mortgage payments.

You’ve probably heard the phrase “stepping over dollars to pick up pennies.” With these financial fallacies, that’s exactly what you’re doing. However, by seeing past these traps you’ll be able to think clearly and make better financial decisions.


Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded in 2015 to focus on personal finance and the emerging FinTech markets.

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