Being frugal is smart, and these days, it's fashionable too. Sometimes, though, it just doesn't make sense to be a Scrooge: Going too far in your attempts to save can have financial consequences that leave you significantly worse off. Here are nine ways you shouldn't cut corners.
1. Ignoring insurance. Insurance of any kind can be expensive, but not as expensive as not having it, says Jim Garnett, also known as "Ask Mr. G," a financial expert with the Institute of Consumer Financial Education. Home, car, life and health insurance are important enough to sacrifice in other areas to afford it. "One accident, one major illness, one fire, or one death can literally send us to the bankruptcy court if we are not insured adequately," Garnett says.
2. Miserly maintenance. "Home and car maintenance are not areas in which we should focus on being 'cheap'," says Garnett. When it comes to your home, things like painting, caulking, replacing furnace filters, having the chimney cleaned and repairing the roof cost money, and car maintenance such as oil changes and tire rotation can seem like the sorts of things you can get away with postponing. But spending a little on regular maintenance usually helps avoid big bills for major repairs later, Garnett warns. It's also not always the wisest move to go with the least expensive solution: The cheapest mechanic in town may not be your best choice.
3. Unrealistic budgets. So often, well-intentioned people derail their newly constructed budget plans by being too strict. They cut each category, then discover they can't adjust their lifestyle to fit the plan, and abandon the plan altogether. "Going on a budget diet is no different from going on a food diet. If you deprive yourself of too much, you're likely to blow off the plan [and] go on a spending/eating spree, leaving you worse off than when you began and too discouraged to try again," warns Gail Cunningham, spokesperson for the National Foundation for Credit Counseling.
4. Avoiding the doctor or dentist. Putting off a visit to your medical practitioner when you have a health issue can be dangerous and might cost you more in the long run, says Cathi Brese Doebler, author of "Ditch The Joneses, Discover Your Family." Regular check-ups can help prevent smaller problems from morphing into major issues. "Fixing a small cavity in your teeth will be less expensive than having to do more extensive work on a severely damaged tooth that has been neglected," she notes.
5. Senseless shopping. People can be quick to purchase anything they have a coupon for, or anything that's on sale. "To be sure, smart shopping encourages us to look for bargains," says Garnett. "But buying things we do not need just because 'it is a good deal' is senseless shopping and cannot be justified." Over time, it adds up.
6. Raiding the retirement account. This is another method that's often viewed as a "cheap way to get what we want" that usually backfires, says Garnett. When retirement funds are raided to pay off debt, people most often find themselves back in an equally deep debt hole after just 30 months. Plus raiding of one's retirement accounts early without a repayment plan can result in a 30 percent to 40 percent loss of the total withdrawn due to penalties and tax liabilities, says Garnett.
7. Shortsightedness at the supermarket. Some foods are cheap for a reason — they're not healthy. "If you spend less money on food, but the food is unhealthy, you can impact your health over time. This can lead to long-term health problems and more visits to the doctor," says Brese Doebler. "Many healthy foods can also be affordable foods."
8. Picking insurance by the premium. "Many people shop for health insurance by looking at just the monthly price of the plan. But there are many other things to consider," says Carrie McLean, consumer specialist with . "Going the cheapest route might end up being more expensive. For example, a health insurance plan with a low premium, but a high yearly deductible of thousands of dollars can be costly if you end up needing major medical attention."
9. Snubbing savings "I've often heard someone say, 'But I can't afford to save because the interest I make is less than the interest I owe!' " says Garnett. However, you shouldn't view your emergency saving account as an investment — it's there for the purpose of anticipating problems before they happen, says Garnett. "The money you save by not having to go into debt to pay for those emergencies will far outweigh the fact that your savings interest is low," he adds. Save even $10 per paycheck, he says: "Not saving will end up costing you more." Similarly, being too cheap to sock away money in your 401(k) a the level that gives you your employer's full company match is turning your nose up at free money.
You always want to be a wise shopper who gets the most value for your hard-earned cash. But always remember to ask yourself whether a deal is the real deal, or whether the short-term savings you're pursuing might make you pay in the long run.