When it comes to saving money, are you unrivaled among your circle of friends? Sure, being frugal and keeping an eye on the cost of things definitely has its benefits. But what about those times when it pays to spend a little more? Here are some scenarios when pinching your pennies doesn’t pay:
When you don’t know the difference between being frugal and being stingy.
There’s a clear distinction between being frugal and being stingy. What’s the difference, you ask? Being frugal is about being resourceful and creative with what you have. Being stingy, on the other hand, is saving money for the pure sake of it, and making your purchasing decisions based on whatever is the cheapest. Ultimately it’s about knowing the value of a given purchase versus merely looking at the price tag.
When you are underinsured.
While you may have insurance, does it cover everything you need? While getting the bare bones insurance policy will save you from paying penalties, it’s important that you have coverage that fits with your budget and will be the most value to you. “Your motto should be the best coverage I can get, at the lowest price, not the lowest price and the worst coverage,” explains Shannah Compton Game, CFP®, MBA. “Take time, shop around, be smart about your decisions,” Game adds. Whether it’s health or auto insurance, not having the right plan will only end up costing you majorly in the long run.
When you buy things that are poorly made.
Reaching for whatever has the lowest price tag isn’t always the best choice. If it’s shoddily made, you might soon regret it. Sure, it’s fine to pay less for things you care about, but when it comes to purchases that you want to endure a lot of wear and tear or have to do with your safety (i.e., a good set of car tires), you might want to consider spending more.
When you deprive yourself of the things you enjoy.
There’s a huge difference between buying something compulsively or to keep up with the Joneses, and buying something because it will truly add value to your life. What if you love handmade (yet pricey) purses sold on Etsy? Or if you’re an audiophile and could really use a good set of headphones? While you may not be able to afford these things all the time, splurging on occasion can boost your happiness. (As long as you don’t hurt your budget doing so, of course.) Before you make a big purchase, just check your bank account (and try the Sprig by CO-OP virtual wallet if your credit union participates) to make sure you have enough saved so you don’t go over your budget.
When it’s more trouble to do it yourself.
Have you ever felt ambitious about building your own work desk, and after laboring over it over a weekend abandoned it altogether and got a desk from IKEA instead? “Being frugal doesn’t pay off when your frugal endeavors prevent you from making more money than you’re saving,” explains Will Lipovsky of First Quarter Finance. Sometimes it makes more sense to buy the store-bought version or hire someone to free up more of your time to earn more or to pursue the things you want.
Knowing the full cost and value of things goes beyond the price tag. Asking yourself if it’s worth the cost will help you figure out if it’s worth spending a little more on. Figuring out whether to skimp or splurge on a purchase will help you to ultimately lead a life of your own design.
It doesn’t pay to be frugal if it’s negatively impacting your emotional or physical health. Without health, you have no wealth. So whether you’re considering a purchase, insuring against the unexpected or deciding whether it’s worthwhile to tackle a project yourself, make sure your decision isn’t based on money alone.
Editor’s Note: This post previously published on September 29, 2015.