When we got serious about saving money the first thing I did was search my house for a calculator. I am always amazed at how many times people make financial decisions based on what they “believe” to be the best financial option, but they never actually run the numbers.
Just last week my husband realized that he cannot bike to work, as he had been doing in the past. ( He needs knee surgery, but I am getting off topic) We both immediately started talking about selling our Suburban and getting a car or just getting a motorcycle for him to ride to work. Before we got totally carried away with the discussion and my husband ran out and bought some steel-toed boots I did a quick caculation to see how much money we would save if we bought a motorcycle.
Amount of gas money currently used every week driving to work: $12 (using $2.5o a gallon price)
Total yearly gas cost: $624
Upfront cost for a cheap motorcycle/ scooter plus gear: $1700 (I think this number is low, but I used it anyway)
Yearly gas estimate for a motorcycle/ scooter: $104
The gas savings for a motorcycle is not that high because we live very close to my husband’s work. If he had to travel 50 miles a day the savings would be much greater.
The first year we would save $520 in gas riding a motorcycle, but we spent $1700 purchasing one, so that savings isn’t realized.
The second year we would save another $520, but that would also go towards the purchase price.
Same thing for the third year…
It isn’t until the fourth year that we are saving money by purchasing a motorcycle.
Since we only have three year orders to this base, we would never re-coup our money if we purchased a motorcycle.
Now this calculation doesn’t take into consideration gas prices fluctuating, repairs, or the “fun factor” of owning a motorcycle, but I think you get the idea.
Another example is cloth diapers. I thought I could save money using cloth diapers, but it wasn’t until my friend from church showed me a spread sheet her husband made that I knew I would save money using cloth.
Before you make a big purchase or even a small purchase do the math. It is even a good idea to take a calculator to the grocery store to help you get the best deal.
One online resource I found a few years ago is Dinkytown, the name might be silly but this site is loaded with calculators. When we were trying to decide if we should purchase a house I went to the site and ran the numbers using one of their calculators. They also have calculators for savings , investments, loans (bad, bad bad) auto, debt reduction and more.
Dave Ramsey says that personal finance is 80% emotional. He is probably right, but I believe one of the best ways to save money is to be intellectual about your money. Do the math, and make your decision after you have all the data.
This post is linking to Frugal Friday.