Some ideas may seem like great ways to save money, but they end up costing you. Here’s how to avoid the specter of false economy
If you’ve ever driven across town to save a nickel on a gallon of gas, then you’ve been a victim of false economy — that is, an action intended to save money that ends up costing even more money in the long run.
We savvy consumers occasionally run afoul of this type of behavior in our quest to save money. But don’t feel bad: governments tend to be even worse about it, and our bad decisions cost maybe a few bucks, not billions.
Sometimes, making a decent money-saving decision requires a little thought rather than snap judgment.
Take the gasoline example above. A nickel less per gallon may seem like a good deal, but think about it: if you have to drive across town you’re burning gas, incurring wear and tear on your car, and worse, wasting your valuable time. Is all that really worth it to save a buck or less on your fill-up?
The savvy consumer runs into the specter of false economy at every turn.
It’s one thing to decide that a $10 digital watch is a better deal than a Rolex, since even if you have to replace it a dozen times, you’re still better off financially. That makes sense if style isn’t an issue. On the other hand, buying a year’s supply of food you’ll never be able to eat before it all goes bad is false economy.
Similarly, buying $10 knockoff dress shoes may not be a good deal if they fall apart in three months, which they very well might. That’s when you’re better off buying the $100 pair at Nordstrom’s, because let’s face it: they’ll last forever if you treat them right. Buy quality (within reason), and you’ll save in the long run.
Sometimes, saving money can really hurt you on big-ticket purchases. For example: if you buy a cheap car because it’s cheap, you may end up spending a lot more on repairs than you would have if you’d sprung for the next model up. The same is true for anything mechanical, really.
Houses are also prone to this. If you can buy a slightly bigger home at a lower price than another house you’re looking at, maybe there’s a reason for that. It may be in a flood plain, or termite-infested, or a bad risk, or in an area where it’ll be difficult to sell later on.
Big or small, you’ve got to look closely at any deal before assuming it’s a good one… or in the end, you may have an even bigger chunk taken out of your pocketbook by false economy.