I’m always looking for ways to save money, but there are some that are just dangerous or potentially expensive.
Just this week research from Gocompare.com found that one in 10 parents were willing to insure their child’s car in their name, to reduce their offspring’s premiums. It’s a practice known as ‘fronting’.
That might be understandable when a teenager’s car insurance can cost well over £2,000, but it is still fraud.
And that means it can go badly wrong if the driver needs to claim and is told their policy isn’t valid – the costs of even a simple crash can soon mount up, especially if there are compensation payments to include.
This got me thinking about other ways that attempts to save cash can backfire badly. Here are some of the most common ways that money saving goes wrong…
Under-insuring to cut premiums
It’s not just fronting. Gocompare.com found that 24% of the people it asked would consider lying to their insurer if it meant they could reduce their premiums, risking invalidating their policy and finding themselves underinsured.
But I think that accidentally underestimating the value of your stuff is an even greater risk. Not many people know that they could invalidate their home insurance by failing to accurately estimate their valuables.
If you have, then when you come to claim the insurer will usually pay a reduced amount. So, if you have £50,000-worth of belongings, but are only covered for £25,000, your insurer could refuse to pay out more than £12,500 if you claimed.
However, it’s not unknown for the insurer to scrap the claim completely. One family in the news this week lost a £31,000 pay-out because they were underinsured. The provider refused their claim and reimbursed their premiums.
And of course, the other danger is that you raise your excess or cancel cover you need, like legal insurance or a courtesy car, just to bring the price down. That will save you money on your premiums, but you’ll pay through the nose if you have an accident and have to pay yourself.
Buying false ‘bargains’ at the supermarket
Most of us have been seduced by a supermarket deal at some point, particularly when they make a product look like it’s a bargain when it’s really not.
If a tin of beans says ‘Now 49p’ on it, we’re far more likely to buy it and even stock up. But the saving could be tiny, or non-existent.
Supermarkets have been caught out again and again boosting prices for a short period, so that they can ‘slash’ them later on.
But there is a way to avoid falling for these tricks. The grocery comparison website MySupermarket.com has a price tracker, so you can see how the price of any item has changed over the last 12 months.
That way you can check for deliberately inflated prices and see if what you’re buying is a true bargain, before you buy extra.
Read other ways to avoid falling for supermarkets’ underhand tactics in our article ‘How to beat the latest supermarket tricks’.
Spending a fortune on ‘money-saving’ gear
This is something I’m really susceptible to and have to guard against. It’s very easy to decide that a new hobby could save you money, and then spend a fortune buying all the equipment, only to abandon it a few weeks later.
For example, you might decide to ride a bike to work to save fuel, grow your own veg to save money or knit your Christmas presents.
So you buy a bike, or a greenhouse, or a pile of books, needles and wool, only to discard them after the first week.
All those things could save you money, but only if you actually use them. Otherwise, you simply risk wasting money.
I always try to borrow equipment before I buy it, or use a website like Freegle or Freecycle to find unwanted free kit. That way I can test my commitment before buying expensive new stuff.
Being swayed by vouchers
We all love a bargain and businesses have capitalised on that by offering vouchers and discounts to lure us in. They make it hard to remember that we’re only saving money if it’s something we’d have bought anyway.
[Related feature: Beware the vouchers that cost you more]
Overestimating your savings
It’s worth being realistic about how much money you’ve saved with a scheme, otherwise it’s tempting to splash out elsewhere – justified by the amount you saved.
For example, when we moved house I thought we’d saved £2,000 by hiring a van and shifting the furniture ourselves.
Because of that, I argued that we could afford to raid our savings to decorate the house. But when I actually looked at the numbers (How I ‘saved’ £2,000 moving house), I realised we’d probably only saved a couple of hundred quid.
Baking cakes instead of buying
It’s drilled into us that cooking from scratch saves money, so I was very surprised to find that it’s often cheaper to buy a cake rather than bake one.
When I compared three standard cakes, I found that buying them was almost always cheaper, even without factoring in the expensive decorations I like to buy.
Read my article ‘Is baking cheaper than buying?’ to see how the prices compared. Although, I have to confess that I still bake my own. Sometimes the extra expense is worth it – just don’t kid yourself that it’s a saving.
Have you wasted money trying to save it? Been tempted to lie to an insurer? Share your experiences with other readers using the comments below.