Photo (cc) by Morgali Photography
While it’s true that “a penny saved is a penny earned,” take it too far and another expression applies: “A fool and his money are soon parted.”
It’s dumb to pinch pennies if the result ultimately costs more than the savings. For example, using $2 worth of gas to drive across town to save $1 on a tankful.
In the video below, Money Talks News founder Stacy Johnson takes a look at more penny-wise, pound-foolish decisions. Check it out, then read on for more…
Now here’s an expanded list of expenses where over-saving may ultimately result in overspending.
1. Car maintenance
Bad idea: Skipping an oil change. You save $30 now, but your engine won’t last as long. Best case, you spend $5,000 on a new engine years before you had to. Worst case, it might happen next week.
Better idea: When you change your oil, don’t overdo it: some cars only require an oil change every 6,000 miles. Check your owners manual. Another place you might save? Fewer tune-ups. Check with your mechanic, but many will say if your car’s running fine, it’s OK to leave well enough alone.
2. Car insurance
Bad idea: Reducing your liability coverage. Whatever you might save, it’s not worth it in case of an accident. You need enough insurance to cover your net worth.
Better idea: If you’ve got a clunker only worth a few hundred bucks, consider dropping collision and comprehensive – the part of your policy that reimburses you for damage that’s your fault, or perils like fire and theft. That’s one of several ways to save on car insurance. Single best idea? Raise your deductible.
Bad idea: Dropping health insurance, skipping doctor visits, splitting your prescription doses or otherwise not properly taking care of yourself. Even if you’re feeling fine, saving a few bucks now can cost you tens of thousands later, not to mention your health, your happiness and even your life.
Better idea: If you can possibly afford it, get insurance, even if it’s just major medical: The last thing you want is friends and family holding bake sales to keep you alive. If you’re on medications, ask your doctor if there are cheaper substitutes, and ask for free samples. Think about importing discounted drugs. Follow doctor’s orders and do everything you can to stay healthy.
Bad idea: Cutting back on homeowner’s insurance or maintenance. The cost of maintenance beats the cost of repairs, and you always need enough insurance to replace your home and possessions.
Better idea: As with cars, an ounce of prevention beats a pound of cure. It’s easier to paint your siding than replace it, and it’s cheaper to water your plants than buy new ones. When it comes to insurance, don’t cut coverage, cut costs. Raising your deductible from $250 to $1,000 can save you 15 percent.
5. Savings and debt
Bad idea: Putting money in a savings account earning 1 percent while paying 18 percent on a credit card. While it’s comforting to have a fat bank account, your net worth is decreasing by the difference between what you’re earning and what you’re paying.
Better idea: If your job is in imminent danger, save all the cash you can. If your job is secure, however, pay off high-interest debt, then start saving. And when you pay debts, always pay more than the minimum, and learn the best system to destroy debt.
Bad idea: Spending more time researching marginally cheaper flights, hotels and rental cars than you do enjoying your vacation. The Internet is a great way to comparison shop, but when it comes to travel, you can quickly find yourself bogged down.
Better idea: If you find logistics tiresome, or if the trip is complex, get a travel agent to handle it all. The average fee to book a plane flight is $36: not much, especially if you typically spend hours online, then hours more afterword wondering if you got the best deal. Check out 4 Reasons I’m Done Booking Online Flights for more.
Bad idea: Buying something obviously cheap or cheezy for your significant other, particularly if little or no thought went into it. For examples, see 15 Worst Gifts for Women and 15 Worst Gifts for Men
Better idea: When it comes to gift giving, you don’t have to spend a lot. You do, however, need to use some imagination. From picnics to framed photos, there are plenty of ways to say “I love you” without breaking the bank. In short, if you’re only going to spend a little, think a lot.
8. Quality of life
Bad idea: Saving so much and spending so little your bank account swells but your fun shrivels away to nothing.
Better idea: Decide what’s really important in your life – the things that truly make you happy. Make a list of those things, then vow to stop using discretionary income for anything that isn’t on it. But if something really makes you happy, and you can afford it, do it.
9. Retirement plans
Bad idea: Not contributing to your work-related retirement plan, especially if your employer matches your contributions.
Better idea: Contribute at least enough to your retirement plan to get matching money. There are very few times in life you’re offered free money. This is one of them.
10. Your teeth
Bad idea: Saving a few bucks by skipping dental exams and cleanings.
Better idea: Spending a few bucks regularly to care for your teeth. It will save big money, your appearance and many uncomfortable hours in a dental chair.
Bad idea: Not being willing to make more later by spending money now on a degree or advanced training.
Better idea: Getting educated doesn’t have to cost $45,000 in annual tuition, nor does it require an ivy league school. From state college to technical schools, a little education today can mean fatter paychecks for decades.
Bad idea: Avoiding risk by keeping all your savings in an insured bank account.
Better idea: While gambling is never a good idea, only investing in insured savings means losing ground to inflation over time. Put part of your money into stocks and other ownership investments. Just be smart about it.
The bottom line
You can, and should, save money wherever you can: that’s one of the foundations of this website. But don’t get carried away and become penny wise and pound foolish. Don’t scrimp on preventative care, maintenance or when the negative effect on your quality of life outweighs the positive.