Many posts on this blog, and others talk about reducing your spending. What you rarely hear about is that cutting corners in spending in certain areas can actually end up costing you in the long run. This makes logical sense of course, and there is even a cliche that indicates it: Penny Wise, Pound Foolish. However, we probably don’t spend enough attention and time in the Personal finance world on this important subject.
Our Recent Smart Expenditure: Creating A Will
A great example for me is getting a will for my family. For a long time I put off getting my family a will. It costs upwards of $1000 dollars for a lawyer to draft a will. However, the impact of not having one should both me and my spouse unexpectedly pass is that the custody of our two sons and their inheritance would likely be in a state of flux. We know whom we want to care for our children should something happen to us, but without official documentation, our wants may count for naught.
I’ve actually seen this with an elder relative, where they really wanted their estate to go to a specific family member that was not next on the inheritance list. Given his refusal to sign a will, the property ultimately went into probate and was ripped apart by lawsuits between other family members that were next on the list. His specific family member was not even in the discussion and because of his lack of a will the only one that got his property were lawyers. Always get a will!
Other examples of Penny Wise, Pound Foolish
There are many other things you should spend your money on rather than save:
If you’re not changing your car’s oil and rotating tires on a periodic basis you’re asking for trouble. You can of course save money by doing it yourself, but you still need to do it.
Home Maintenance and Repairs
Neglecting home maintenance and minor repairs usually results in major repairs down the line. A leaky basement can result in mold issues. Leaky roof can necessitate repairs to the interior of your home. You get the idea, there is a list a mile long of things you need to keep in good shape in your home to avoid costs down the road.
While not strictly financial, a divorce is the single largest destroyer of wealth in this country. If you’re married, make sure to take time out to spend with your spouse, and show them you appreciate them. Be patient with issues. It will save you a lot of problems down the road.
Spending More Time Trying to Get a Deal then the Deal is Worth
For example for all those extreme coupons, and deal searches on the web, is 10 dollars really worth a 20 hour search? I’m especially guilty of this one, it’s an area I’m working on.
Spending Money Trying to Get a Deal that is Worth Less
I remember about 10 years ago they had websites, and probably still do, that tell you the nearest gas station with the lowest price. I use to think it was great to know where that lowest price gas station was and save us about 6 cents a gallon. Then I started to think about it and realized I probably consume a dollar getting to the gas station, even before you factor in my time, so there is no savings. Instead these days I just choose the cheapest gas station on my previously decided route.
Not Having Health Insurance or Going to the Doctor Regularly
Like a car, your health requires maintenance. Waiting too long can make it much more expensive to fix. Unlike a car it could also mean you ultimately are no longer with us. Then your savings is someone elses, so what have you saved?
Buying in Bulk without a Plan for excess
So, from time to time we buy fruits and veggies in bulk. This reduces costs significantly. However every so often we miscalculate and something spoils. In this case we haven’t really saved anything.
Mothers Working if they Make Less then the Cost of Daycare
As noted in my post about my wife being a stay at home mom, Daycare is expensive. For 2 kids, my break even point for her pay was 37K. Her working for anything less then 37K would thus be Penny Wise, Pound Foolish because we’d be paying for her to work.
Buying Something of Lesser Reliability/Quality
If you have a choice of spending 5 dollars on something that lasts 3 months or 10 dollars on something that lasts a year and it’s something you need for the whole time, then the 5 dollar 3 month option is not a deal. Always remember, especially when shopping, to compare goods by their per unit price and consider whether you’re really saving money.
And speaking of pricing, as noted previously in my pricing article, many retailers use sales and discount percentages to get you to buy more then you need. If you buy something you don’t really want or need, then you haven’t really saved anything.
Spending more and buying more to get credit card cash back. Especially if you end up carrying a balance, you’ve essentially eliminated any of the benefits of the cash back savings.
Where do you spend to avoid being Penny Wise, Pound Foolish? I’m sure there are dozens more that I’ve missed.