Penny Wise and Dollar Foolish: When Not to Be a Cheapskate

The following is a guest post from Tim Chen, founder and CEO of NerdWallet.com, a website that helps consumers to find rewards credit cards.  Tim also educates consumers about credit cards and debt management at the Forbes Moneybuilder Blog, the Huffington Post, and U.S.News. 

Everybody loves a bargain. But sometimes what seems like a bargain at first could end up costing you more in the end.  Companies know that nothing sells like a sale, and consumers are crazy for bargains, so they try to exploit your instincts and get you to buy things you don’t need.

So saving money can often cost you more. For example, buying that massive can of Beef-a-Roni that will expire long before you could ever eat it all, like Seinfeld’s Kramer and Newman, is saving gone awry. Another example would be upsizing that flat panel TV just to get a few more dollars of cash back credit card rewards. 

Along the same vein, there are also times when spending more can help you save. Here are some ideas for getting in touch in with your inner cheapskate, knowing when to be frugal, and when to pay up.

• Sweat the small stuff. Many people spend hours researching the best price for big-ticket items such as televisions and home appliances but are clueless about how much everyday items cost. While you might save $100 on that laptop, you could save much more by paying attention to the small purchases too. Saving $.50 on cans of soup or $1 on boxes of cereal seems like small change until you consider how many items you bring home from a typical grocery shopping trip.
• Fight the urge for a good deal. Buy only things you will use, no matter how much they are discounted. Think about it – how many items of clothing have you bought over the years because they were on sale or you found them at an outlet? And how many of those now sit in your closet, never worn, maybe even with the tags still on? If you’re not going to wear the stuff, it doesn’t matter how low the price is, it’s all wasted money.  And as a general rule, Costco is a great option for non-perishables, but think before you buy that jumbo pack of pork chops.  
• Don’t be afraid to splurge when it makes sense. Clothing serves as a great example here as well. While it’s tempting to buy things that are deeply discounted, these items often tend to need replacing after only a couple of seasons. You may well be better off buying a more expensive and well-made coat or pair of shoes that will last you for years. It’ll require a great upfront investment, but could cost significantly less down the road. 
• Take care of your health. Doctor’s appointments aren’t cheap, even if you have great insurance. But paying the cost for that yearly physical could spare you many more appointments in the future. You may also be tempted to put off seeing a physician until you’re absolutely certain you have a problem, which could be a costly mistake.  Preventative health care can uncover potentially expensive ongoing conditions such as diabetes, saving money on medical bills in the long run. 
• Time is money too. Money is only part of the equation. What is your time worth? It may make more sense to hire out tasks such as changing the oil in the car or cleaning your house when you compare how much time it takes you versus how much it costs you. The best way to save money is to find a way to make more, so consider how much more time you could spend working toward that goal if you weren’t bogged down with menial tasks. 
• Don’t jump at 0% offers just to earn interest. Plenty of people try to game the system by borrowing money on 0% introductory APR credit cards and reinvesting the money into things like CDs. This may sound like free money, but with interest rates so low right now, it’s probably not worth the headache. If you run up an unnecessary $5,000 balance just to earn 2% on the money, you’re talking about $100 per year in interest, if you can manage not to screw up by making a late payment. At the same time you are raising your credit utilization rate and having your credit report pulled on a regular basis, both of which can lower your credit score.