Have you ever heard of the British saying, “penny wise, pound foolish?” It’s an interesting saying and can put your spending and investing habits into perspective if you know what it means.
We bring this concept to you because we understand that everyone loves to save money, but you may not be realizing you’re doing it all wrong. That’s what the saying is all about, so we’re going to list a few pitfalls that you may not see until they’re spelled out for you.
Penny Wise, Pound Foolish – The Meaning
For starters, you need to know that pennies are smaller amounts of money and pounds are larger amounts in British money. People that are penny wise, pound foolish tend to want to cut expenses on what they think are the small things to save money.
The result is a more considerable, more expensive cost later on because things weren’t done correctly the first time around. Pound foolish refers to the larger amounts of money that end up getting spent when they didn’t have to be in the first place.
1. Neglecting Medical Care
Neglecting your personal medical care is a big one for people when they think they’re saving money. Many people don’t want to have to pay the copayments for what they believe is a minor cold. On the surface, it makes sense because the copayments add up, right? Even more so when you have a family.
Here’s the kicker for this one. Let’s say you decide not to get checked for medical care even though you’re feeling nauseous and dizzy. You figure maybe it’s because you’re tired or just perhaps dehydrated, and all you need is rest.
That’s when the other shoe drops. Now, you’ve got a fever and other symptoms. You’ve gotten progressively worse, and it’s only when you managed to drag yourself out of bed to visit the doctor to find out you had strep that turned into scarlet fever.
The moral of the story is if you had just taken yourself in when you were in the early stages, you would’ve only had to pay the copay and maybe something for antibiotics. Now, you’re missing work, potentially losing money because of the missed work, and you still have a copay and medicine that you have to pay for.
2. Buying Items For The Family
This one is a tough one because this depends on a few things. Parents know that kids grow out of clothing quickly and so may have a hard time justifying spending large amounts of money on quality clothing. That makes sense for children, at least to some extent.
There are other things like backpacks, as an example, that would be better for you if you spent the money to buy a good, quality bag instead of the cheapest option. Consider that a quality backpack can run anywhere between $$-$$$ for a single bag. It seems like a lot up front, but if you’re replacing a $ bag once a month for the entire school year, by the end, you’ve likely spent close to $$$ or more.
That translates to overspending by as much as $$ for that single backpack you could have purchased to begin with. Replace the backpack with a bag for your computer, a purse, really anything, and you’re still left with the same thing – being penny wise, pound foolish.
3. Credit Card Transfers And Their Implications
You’ve seen those instances where you have a 0% interest rate if you apply for a new credit card and then transfer an existing balance to the new card. If you are in the market for a new car, house, or anything else where your credit needs to be checked, you’re hurting yourself when you do this.
Sure, you’ll save all kinds of money when you transfer the other credit card balance, but the impact of a new credit line can mean a lower credit score. A lower credit score translates to higher loan rates or higher interest rates on new purchases. Once again, you’ve saved pennies while the choices you’ve made could have cost you thousands more.
It could go even further from there because now, you’ve got another credit card that has to be paid and your old credit card is empty. If you’re transferring balances to save money, you need to take a hard look at yourself and question whether or not you’re really smart about your spending habits. You may not like what you see.
4. Finding The Lowest Gas Price
Gas prices fluctuate every year. There’s no real way around that. Chances are that you’ve considered trying to find the lowest price for gas when it was time to refuel in order to save some money. You know where this is going.
So you’ve found that the lowest price is fifteen minutes away while there is another gas station that is all of two minutes from your home. True, the closer one is a few pennies more expensive, but if you’re driving thirty minutes total drive time to get to and from the less expensive one, are you really saving money?
The answer to that is no. Not at all. Instead, not only are you using the extra savings in gas that you got when you do the extra driving, but you’re also adding extra wear and tear on your vehicle that didn’t need to happen.
5. Avoiding Tax Specialists Or Accountants At Tax Time
If your tax return is more complicated than your basic W2, you need a tax accountant. Seriously. You may think that you can do it, and while you’re not wrong, you’re also not exactly right. Not hiring one may save you a few hundred dollars, but it can cost you thousands later. Let’s give you this scenario and see what you make of it.
Imagine that your spouse is a contractor overseas and is making six-figure income on an annual basis courtesy of this job. Because they are abroad, there is an amount at the beginning that is considered tax-free. The remaining amount must have taxes paid, but if you’re in-country for less than a pre-determined amount of time, legally, you might be able to postpone payment. Of course, you shouldn’t, but you can.
If that’s not enough to make your head spin, imagine your spouse coming back home for good, filing taxes, and realizing that because a tax accountant was not hired in the beginning, the taxes were done entirely incorrectly. Now you owe thousands of dollars in back taxes because you were unaware of tax laws. Penny wise, pound foolish, anyone?
6. Shopping At Garage Sales And Thrift Stores
As long as you know your limitations, these can actually be great places to save money. On the other hand, if you like to visit garage sales and thrift stores as a hobby and tend to buy things on impulse, it may not be the greatest thing for you to do.
There’s another saying about saving money and going broke all at the same time, and that’s what happens here more often than not. Your kid sees a NERF gun that he really doesn’t need, but you figure, hey, it’s only a couple dollars. Doesn’t seem like that much, right?
At least you think so until it happens again and again. The next thing you know, you’ve got fifty NERF guns in your home and only two kids. What makes things worse is that some of them are duplicates, and you really didn’t need to buy them. That two dollars turned into a hundred dollars pretty quickly.
The moral of that story is that if you had limited yourself in the beginning, then it would have been money saved. If you lost control of your spending, it seems like suddenly, you’re pretty pound foolish.
As Newton’s Third Law Says…
For every action, there is an equal and opposite reaction. You can also think of this in terms of the consequences of your actions. You may think you’re doing an excellent job of saving money when the reality is that it is flowing through your fingertips like the sands in an hourglass.
Before you look at how you want to save money, consider the potential consequences of what you’re doing. Is it worth driving an extra fifteen minutes to save some money on filling up your gas tank? Is that cheaper backpack really worth the cumulative costs?
Do yourself and don’t be penny wise, pound foolish. Your wallet will appreciate having more money on the backend because you were willing to take the right path up front.