Why cheapskates are losers

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It appears Australians are starting to get the hang of this whole “saving” thing. But there’s a huge difference between tightening your belt and cinching off the blood flow to your lower extremities.

The Reserve Bank of Australia’s Statement on Monetary Policy released in February revealed that the household savings ratio was at its highest point in more than 20 years. According to the central bank, Aussies are tucking away 10% of their disposable income – that’s a massive swing from the mid-noughties when we were spending about 2% more than we earned.

But there’s a huge difference between tightening your belt and cinching off the blood flow to your lower extremities.

We’re all about saving money, but sometimes the lowest priced products end up costing you more in the long run.

1) Mortgage rates

Simply put – the best mortgage product might not be the one with the lowest interest rate. There are some fantastic rates on offer from a number of banks and non-bank lenders, but borrowers need to be aware of the exit fees associated with these loans. If you’re planning on moving in a couple of years, you may be required to pay a substantial break fee cost which could offset the savings you’ve achieved with a low rate provider. The government has proposed a complete ban on mortgage exit fees, which could come into effect from July 1 this year. But borrowers need to be aware that other fees to recoup these costs could crop up as a result.

Another thing to look out for are package deals. Some of banks’ most competitive rates are only available on package deals which include other products such as a credit card and a transaction account. This might not be a bad thing depending on your situation, but be aware of the associated fees of these other products.

Borrowers also need to compare other charges such as the application and ongoing fees. On average, major banks’ ongoing annual fees cost $248 – three times more than that of other lenders ($76) – over the life of the loan this adds up to thousands of dollars.

But home loans with cheap interest rates might not have the features you’re looking for such as the availability of split facility, 100% offset account, or redraw facility. At the end of the day, your unique financial situation and goals will ultimately determine what will be the best mortgage product for you in the long run.

Comparison websites and mortgage brokers can help you research the best options for you.

2) Cars

As counter-intuitive as it seems, a $55k Prado is actually cheaper than a $33k Camry. A recent analysis by Your Money Magazine revealed that the most economical cars in Australia are not necessarily the ones with the cheapest sticker price. 

Working out the true cost of owning a vehicle involves calculating the cost of depreciation as well as the operating costs. Operating costs are made up of: fuel, insurance, registration, maintenance, tyres and repairs.

According to the NRMA, the ‘opportunity interest cost’ is another factor to consider. This is the amount of interest that you could have received on the depreciated portion of the purchase price if you had instead invested it in a high-interest savings account.

After analysing hundreds of the most popular vehicles in the country, Your Money Magazine uncovered the best deals on light, small, medium, large, SUVs (compact) and SUVs (medium) – and some of the results will surprise you. Toyota scored exceptionally well across several of the categories, followed by Mazda and Hyundai. Pick up a copy of the magazine at your newsagent today to get the full report. 

3) Clothes

Picture your closet. Now picture the items of clothing you wear most. I’d hazard a guess that most of your clothes never make it off the hanger, right? If you were to take a calculator and add up the prices of each item you purchased because it was on sale, or seemed like a good deal at the time, you might be shocked to look at how much money you’ve actually wasted.

Now all is not completely lost if you’re able to take those “super-bargain sale” clothes and put them into consignment. But consignment shops are only looking for quality-made clothing. If it’s cheaply-made and the threads have already started coming apart after wearing it once, then your chances of recouping some of your costs are limited.

You’re far better off buying a higher-priced item of clothing that is timeless, well-made and fits appropriately.

Of course, one could also argue that there’s both a human cost and environmental cost to buying cheap clothing.

4) Phone plans

A cheap phone plan will actually cost you more if you’re consistently going over your usage limits. You can determine the best plan by being honest with yourself about your phone usage habits. A good website to reference is www.phonechoice.com.au, which helps consumers compare telecommunication services. Best of all, it’s independent and free. 

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