I’ve always been big on saving, but I also believe in spending. I never understood why people would go through all the effort of saving and then not spend any of it. I suppose some people are frugal (or cheap), but I do think that saving can go too far.
Saving is always great, but some of the things we do to save a dollar are just extreme. If we live within our means, budget, and save, we should be in good shape right? Sure, however, some of the ways we save and what we do with our money after can backfire on us.
Spending too much time trying to save
As a budget travel expert, I always have people asking me when is the best time to buy airfare? The thing is, airfare is dynamic, it changes all the time based on demand. Prices go up and down all the time; that’s just the way it works. More importantly, why would you spend 10 hours searching for flights just to save $100? Your time is worth much more than $10 an hour.
Don’t get me wrong, with any purchase, you definitely want to price compare. Just understand that your time is valuable. If you see a price that you think is fair, just buy it, there will always be other ways to save money.
Not saving on the right things
Have you ever hear of the sayings “every penny counts” or “the latte factor?” The idea is that small purchases add up to large amounts which can cost you a lot in the long run. I’m all for saving money, but instead of worrying about a few dollars, wouldn’t it make more sense to look at major expenses such as buying a home?
Think about it, if you purchase a reasonably priced home, does it matter how many coffees you buy a day? When I bought my home, I had a hard budget of $450,000 since I knew it wouldn’t affect my lifestyle. I still take vacations, eat out when I want, and yes, I buy drinks when I want.
You might not be buying a home anytime soon, but instead of worrying about the small stuff, take a look at your budget again and see if there are any adjustments that you can make.
You’re not making the right investment choices
Plenty of people are great at saving, but when it comes to investing, it terrifies them. They’re so worried about losing money in the markets, they’ll only pick safe investments such as Bonds, GICs, and money market funds. The problem with this strategy is that the returns on those products are pretty low, so it’s unlikely you’ll even beat the rate of inflation.
Alternatively, some people will sell their investments whenever the markets are down. The only thing that does is lock in your losses. Markets go up and down all the time, if you are only investing when the markets are up and sell when things are down, you’re essentially buying high and selling low. That’s a guaranteed way to wreck your portfolio.
You buy cheap stuff
I have to admit, I used to be totally guilty of this. I used to buy low-quality products because they were cheaper, but they also didn’t last as long which I meant I had to buy them more often. I don’t mind buying dollar store ziplock bags or no name pain medication (they’re literally the same as Tylenol and Advil), but I’ve learned not to cheap out things, especially food.
You’re not spending anything
I’m all for saving, but what’s the point if you don’t spend any of it? I hate debt more than the average person, but I still understand that there needs to be a delicate balance between saving and spending. To keep things balanced, I have automatic transfers set up for all my savings goals, anything left over, I spend guilt free.
Some people prefer to put all their extra money towards their mortgage, which isn’t a bad thing, but it might make more sense to invest your money instead. You can get a 5-year fixed mortgage for less 2.5% right now, you should easily be able to beat that in the markets. That being said, paying down your mortgage is a form of forced savings, and I can’t blame anyone for that.