It’s Halloween! You know what that means, tricks and treats abound!
Hey, Sebastian here, and today I’m here to let you know that trick or treat isn’t just reserved for Halloween candy. In fact, you’re probably being tricked or treated with your money every week!
For us, this is an everyday fact when it comes to taking care of our money. When we buy goods and services we always want to make sure we get our money’s worth.
But what if you think you’re getting your money’s worth when in fact you’re being tricked?
A common phrase we hear is “I got a good deal.”
Did you really?
On the other hand, the one who sold you the goods and/or services would say that they made a sale and call it a win.
Who is the real winner? Ever thought about it? Were you just tricked or treated with your money?
There is no good answer to this, and it’s highly dependent on the situation and priorities of those involved. So what do we do?
All we can really do is try to get the most out of our money. We at least want to assure ourselves that we feel happy with the price we paid. The last feeling you want is that you just overpaid for something, even worse, that you got tricked!
Are you often falling into impulse buying or a victim of a smart sales pitch? Are you falling into misleading advertisements that only tell you half of the truth?
But, the most important question of all is, are you in control of managing your money?
With these ideas in mind, this Halloween season I decided to give spooky names to the money you spend depending on where your money goes and who gets it.
Are you being tricked or treated with your money?
Read on, if you DARE…
Let’s begin on a positive note by talking about treat money.
While you may think most of your purchases are done with treat money (because you “got a good deal”), our definition of treat money goes beyond positive emotions.
For us, treat money are those money opportunities you can really take advantage of. In other words, these are situations in which you can reap benefits without spending money or where you are rewarded for money you already need to spend.
There are many ways you can take advantage of money opportunities and save yourself a ton in the process.
For instance, if you own a home and pay your property tax in a lump sum, you can save 3% off the total. This treat could save you $100 or $200 a year! You can use this same trick with insurance (either with one or two lump payments) and save yourself several hundred a year.
Here are some other ways you can take advantage of treat money:
- Sign up for a credit card and earn a bonus for reduced travel/cash back. Just make sure you pay your bills on time to avoid interest.
- Use a rewards credit card to earn points for reduced travel or cash back. Again, make sure you pay your balance on time to avoid interest.
- Make extra payments toward your mortgage or other loans to cut down on the interest paid (See Start Taking an Interest in Interest: Mortgages).
- Open a checking/savings account where the bank pays you money for starting the account.
- Buy a 2-3 used car to save big money on the purchase price (See Why Buying a New Car is a Bad Investment).
- Take advantage of sales if you were already looking to buy the item. Only buy something you weren’t planning on buying if it’s at a substantial reduction.
- Forget about the brand name logo and purchase similar clothing for a reduced rate. You can also shop at discount stores (Ross, TJ Maxx, etc.) to save big money on brand names.
Now that we’ve gotten treat money out of the way, it’s time to discuss the bad twin of the duo: trick money.
This is one of the worst money pits you can fall into. Trick money happens when you get exciting and feel good about a purchase, thinking you got a good deal when in fact you were deceived into it.
Don’t feel too bad, we’ve all been the victim of trick money.
After all, the goal of marketing is to get you to buy a product/service, and marketers use all sorts of tricky and manipulative methods to do it.
Credit cards are number one in tricking you out of your money.
Unless you are savvy enough to understand the deal and know how to maximize the perks, as well as disciplined enough to refrain from making purchases you can’t afford to pay off immediately, you are likely being tricked out of more money.
Remember, financial institutions only make money if you pay interest, so deep down they WANT YOU TO CARRY A BALANCE FOR AS LONG AS POSSIBLE.
They prey on you carrying a balance so that they can charge enormous interest, as much as 26% or even more!
And if you make a payment late or default? They’ll charge you interest AND a penalty!
One of the biggest tricks we see are credit cards offering a 0% interest introductory period. This happens for both regular credit cards as well as balance transfer cards.
Now, these opportunities can be turned into treat money if you know how to use them (take advantage of the introductory period to spread out paying for an item(s), but do pay it off before the period ends or it’ll become trick money).
Let’s take balance transfer cards with a 0% introductory period.
First of all, why do you have a balance on your current credit card? Was it that you didn’t have enough money to pay off the current balance or are spending more than you can afford?
Whatever the reason for the balance, if you’re stuck paying 26% interest you might see this as an opportunity to avoid paying interest on your existing debt.
Unfortunately, unless you plan to pay the FULL BALANCE by the time the introductory period ends doing a balance transfer is just an extension.
You are now completely tricked.
They just gave you an excuse to avoid paying your existing debt, while tempting you to commit more debt, all because you’re not being charged interest (for now).
Your financial status hasn’t changed.
Now, you can do one of two things. You can either pay off the balance during the introductory period (which is treat money because you’re not paying interest) or you can continue making payments (or not pay anything at all) and still carry a balance once the introductory period ends.
Ready for the BIG TRICK?
If you cannot pay off the balance you transferred six months ago they will be charging daily interest from the day you transferred the balance!
If you don’t pay your balance by the end of the introductory period your situation hasn’t changed at all, and in fact, it’s gotten even worse!
In this case, your money is going into the money pit of the credit card company for nothing in return. It’s one-way traffic from your wallet to theirs.
Of course, there are well-disciplined savvy financial people who take advantage of offers like the one described above, but you better be careful and understand the fine print of a deal before you take it. Otherwise, your treat money will turn into trick money really fast.
Before you make a decision, take your time to really understand what is going on and whether you will be tricked or treated with your money.
We’ve covered trick and treat money, and now I want to offer a special bonus category.
Ghost money is a specific kind of trick money that plays on social psychology and how our brains frame things.
Ghost money can best be demonstrated with the advertisements that bombard us every day. How many times do you see/hear the word SAVE used belligerently in an attempt to take your money?
Here is my analysis on the BIG SAVE advertisements we see every day.
Almost all advertisements contain some variation of the following:
- Save 50%
- Half-price sale
- Buy one and get one free
- $10,000 cash back
The math whiz hears a reduced amount while the right brainer hears more for free. They are both the same. It all depends on how one’s mind works!
Whichever way you look at it, both views are wrong if you are buying something that you don’t need, especially if it is outside your budget.
The trick is that you haven’t saved anything at all. The “saved” money isn’t real.
It’s ghost money.
In fact, you have SPENT money.
Of course, it’s okay to purchase an item on sale if you were already looking to buy it. Unfortunately, most of us aren’t thinking that way. We’re suckered into spending money we had no intention of spending because it was “such a good deal.”
But that money we “saved?” If you weren’t already planning to spend it then that saved money is really ghost money.
One of my favorite examples of ghost money is with car advertisements. Think about the last car ad you saw.
“GET up to $11,800 in value when you buy a 2019!”
Wait, how are they coming up with that number? Are they really selling a vehicle for $11,800 under what it’s worth?
Either way, you aren’t being given $11,800 you’re spending 30k for the vehicle! That $11,800 is ghost money that you’ll never see.
How about those TV infomercials?
They want to sell something for $39.99. Now, if you order today they’ll double the offer.
But wait! If you call in the next 5 minutes they’ll add many other items worth $99.99 in value for FREE!
Do you really think a company could stay in business selling products that are worth 4x what you are paying?
This is ghost money, it doesn’t exist!
Moral of the Story
Everyone is out to get a good deal.
For the consumer, getting a “good deal” makes them happy. For the company, any sale is a win.
Who won? Who’s really getting a good deal? Are you being tricked or treated with your money?
If you’re being treated then both win. You get a good deal and the company makes a sale. If you’re being tricked, then the company has made a sale and you’ve spent some of your hard-earned money for little in return.
The key is to evaluate your purchases and financial decisions to see if you’re really getting a good deal or not.
How do you know if you’re being tricked or treated with your money?
Treat money is when you get benefits without spending money or where you are rewarded for money you already need to spend.
On the other hand, trick money is when you are deceived into it making a purchase you weren’t planning on.
An extra special form of trick money is ghost money, where a simply social psychology trick has you convinced you’ve saved money when in fact you’ve only spent it.
Before you make your next purchase, stop to think about why you’re thinking of buying it. Are you taking advantage of a sale on an item you were going to buy anyway or feeling pressured to buy an item you don’t need/want because it happens to be on sale?
Are you being tricked or treated with your money?
Talk about Money Saved!
Sebastian is co-blogger at Money Saved is Money Earned. He emigrated from India in his 20's with $15 in his pocket. Despite facing adversity in his early life, Sebastian is an early retired Senior Financial Analyst for the City of Portland. He has owned his home free and clear for 15 years, has had income properties, put three kids through college, and travels to India regularly, all without a six figure income.