I moved to a different apartment over the weekend and between everything that comes up during the moving process I was reminded of a money-saving lesson: Sometimes paying a large sum up-front can save you money in the long-run.
Renter’s Insurance
Last year, I wrote an article about how paying insurance premiums up-front instead of in monthly installments can save you money. Nearly every insurance policy that you have probably charges you more to make installment payments than if you were to pay the balance in full up-front.
When getting a new renter’s insurance policy, I was given 4 payment options: pay in full, 2 payments, 4 payments, or a monthly payment. The option to pay the premium in full was the cheapest with all of the subsequent options becoming more expensive determined by the amount of time you extended the payment.
For example, the 2-payment option was 9.1% more expensive than the lump sum, the 4-payment option was 19.4% more expensive than the lump sum, and the EFT was 50% more expensive than the lump sum. If I showed you this in dollar amounts it would be relatively small ($24-$58) besides the EFT option, but that’s easy money to save. Even if I’m not saving that much in the long-run, I don’t really want to have to pay an extra 9% for no extra benefit. (I definitely don’t want to pay an extra 50%!)
I’ll receive the same coverage no matter which payment option I choose, so I chose the cheapest option.
Save The Premiums
The caveat with paying for your insurance premiums up-front is that you need to continue saving for them throughout the year. You can’t just pay the premium and then forget about it. If you do, you may not be in a position to pay it in full again when the bill comes due. For example, if your auto insurance premium is $500 every 6 months, then you would need to save $83.33 per month to make sure that the money is available when the next bill is due.
Internet
Another situation I was faced with where spending more up-front would help me to save money in the long-run was with my internet service. Doing anything with a cable/internet company is always a pain, right? It was actually pretty easy since I was able to sign up online and see the discounted rate options I could receive for signing up for things like auto-pay and e-bill…until I got to the point where they wanted to charge me $13 per month to rent a modem/wireless router combo. I forgot that part from the last time I signed up for service.
Luckily, I knew there is another option (and I was given the option before I had to proceed) – buy my own modem/router. After speaking with one of the techies in the company where I work, I found I could buy a very high-quality modem/router combo from Amazon for $171.19, including taxes. Yeah, this did hurt to pay the larger amount upfront, and I did hesitate, but some quick math told me that it would pay for itself in a little over a year by not having that $13 monthly payment in perpetuity.
I’m pretty sure I’ll be paying for internet service for much longer than a year, and I’m assuming that the internet company will continue charging customers for the use of a modem/router. Additionally, I’m assuming that the modem/router that I have will last for longer than a year (hopefully A LOT longer). One of my colleagues has had his for over 5 years, so there’s hope. If I’m wrong on these things, then I guess I made the wrong choice.
These aren’t the only situations where paying more up-front can save you money in the long run – they’re just the situations I faced recently. It’s easier to have a monthly payment automatically pulled from your checking account and never have to think about it, but there are many times when it’s clearly more beneficial to explore your options and/or spend more upfront to save some money in the long run. Yeah, the savings may not be much in the grand scheme of things, but I’d rather keep my money than give it away if I don’t have to.
