Spending less and saving more is good. Spending too little, however, can be expensive or even disastrous. If you’ve been trying to watch your budget, good for you. While you’re avoiding overspending, however, make sure you don’t fall into one of these underspending traps.
Just ask Holly Peterson, owner of Elite Retirement Strategies in Pocatello, Idaho.
“I knew someone once who didn’t take care of their gutters – they had other things on their list that they thought were more important to deal with first,” she says. “We had an exceptionally rainy spring, and suddenly their basement was flooded. Because their gutters weren’t working properly, the water took the path of least resistance right into their home. Fixing their gutters would have been a small bill in comparison to what fixing the water damage cost.”
Sometimes the consequences of underspending can be more than expensive. It can actually place your safety and well-being in danger. Peterson had another friend who noticed something wrong with his bicycle but didn’t want to spend the money to fix it.
“He thought it would be fine to keep riding, until one day he biked all the way up a mountain and his bike broke,” she says. “He had to carry it all the way home.”
That could have turned out worse, depending on the location and time of day.
If you’ve been trying to watch your budget, good for you. While you’re avoiding overspending, however, make sure you don’t fall into one of these underspending traps.
See related: Financial advice: One size doesn’t fit all
Putting off repairs and maintenance
That funny noise in the car might be nothing – or it might be a timing belt coming loose, about to wreak havoc on your car engine. The little crack in your windshield can turn into a large crack and a windshield that has to be replaced. Big ants around your foundation could be destroying your home. If your dryer isn’t working as well as it used to, and you don’t have the dryer vent cleaned, you could eventually have a fire.
Repairs and maintenance on a house, car and other belongings can be frustrating when you’re on a tight budget, especially if everything seems to breakdown at once. You may not be able to fix everything that needs it, at least right away. However, it’s important to keep up with repairs and maintenance that could jeopardize your investments or cost far more later.
Not getting checkups and medical attention
Small medical or dental emergencies can become big ones if you put off getting proper care. Skipping checkups and screenings altogether can actually risk your health. Ask your health care professionals what care you should always get, even when you are on a tight budget.
Skimping on anything to do with safety
It may not matter what a bicycle helmet looks like, but don’t cheap out on getting one that protects your head if you take a nasty fall.
“The last place you want to skimp is on activewear gear that keeps you safe,” says Peterson.
The same goes for life jackets if you go boating, car seats for the kids or any other situation where having the right gear or protection can be the difference between life and death.
Having inadequate insurance policies
Not signing up for health, car, life or homeowners insurance can be a financially disastrous mistake if something goes wrong. Talk to an insurance agent if you aren’t sure if you are adequately covered.
One type of insurance frequently overlooked is renter’s insurance. Some renters don’t even realize that their clothes, furniture and electronics are not covered by their landlord’s insurance policy.
“Far too many people pass on getting renters insurance because they don’t want to pay a couple hundred dollars a year,” says Peterson.
Chances are the house will never burn down. But if it does, renters insurance can replace your personal belongings.
“Some policies will even pay for you to stay in a hotel if your apartment is damaged from an emergency,” she says.
Skimping on healthy food
Healthy food for your family can be expensive. The prices in the produce section alone can almost scare a cost-conscious consumer away. But skipping or skimping on good food can backfire if you don’t get the nutrition you need.
“Eating poorly can cause stress, tiredness and also put you at risk for certain illnesses,” says Peterson. “I feel a lot better when I’m eating properly. I am noticeably more energetic, and I get sick less.”
Fortunately, there are many ways to eat healthy while on a budget.
“The internet is full of easy, cheap recipes that will keep your body fueled properly,” says Peterson. “Meal prepping, buying frozen produce and replacing meats with other proteins is a great way to cut down your food budget.”
One way to save money on food without losing nutritional benefits is to raise your food standards. Don’t settle for prepackaged junk that really doesn’t taste good.
Fresh fish and asparagus may seem expensive, for example. But it’s cheaper than many ready-to-eat meals, it’s easy to cook and it’s good for you. Buy the freshest, healthiest food you can afford, and consider it an investment in your family’s well-being.
Buying inferior products or investments
Cheap products, like socks that have holes after the first wash or T-shirts that get nubby in no time, are no bargain. When in doubt, don’t buy either the cheapest or the most expensive in any category. And beware the “it’s on such a good sale” trap. Always ask yourself, “Am I buying this just because it’s cheap, or do I really want or need it?”
The same thing is true when you are making a long-term investment, such as your home.
“Many people do not want to end up ‘house broke’ and will therefore settle into a less desirable home,” says Joseph Polakovic, owner and CEO of Castle West Financial in San Diego. “While this may initially save them some money, they may be hurting themselves in the long run.”
If the house needs major repairs, or worse yet, if the neighborhood is not in demand, their house may not turn out to be a good investment.
“What if the house they actually wanted had better appreciation and would have produced a much happier lifestyle?” Polakovic says.
Forgetting to invest in yourself or your business
Spending money is only one side of the budget equation. Don’t neglect the income side of your finances.
It might take money to improve your job skills – by taking a class, reading books or getting certifications to advance your career, for example. However, the alternative can be feeling stuck at a job level that doesn’t continue to challenge you, and doesn’t pay what your skills could be worth.
If you have a business, not making investments that advance your business can lead to stagnation and decline.
Losing sight of what you’re saving money for
You have good reasons to save money – to get or stay out of debt, to reach financial goals and to be able to afford the things that are most important to you. But when not spending money becomes an obsession – especially for long periods of time – it’s easy to save money just to be saving money, and find yourself making decisions you regret.
For example, Yasmine Purnell, founder of The Wallet Moth blog in Watford, U.K., talks about traveling through Asia for several months. She was new to the concept of frugal living, and she found it easy to cut back on extravagant accommodations and lavish meals.
“I ate at local restaurants for a more authentic taste of the culture, and stayed in hostels where I could meet like-minded travelers,” she says.
Where she thinks underspending could have been counterproductive, however, would have been in missing out on experiences.
“That’s the whole reason you’re traveling in the first place,” she says. “It’s important not to lose sight of the things that make you a happier, richer person through experiences.”
How credit cards can help
If you’re reluctant to plunk down a wad of cash on something you truly need, consider a credit card with an introductory 0 percent APR or a balance transfer card. These cards can help you spread out payments on a big balance for anywhere from 15 to 21 months. That can come in handy if, for instance, you need to weatherize your home, buy a new set of tires for your car or replace a large appliance.
Cash back cards can also help you save on buying healthy foods and high quality clothing and safety gear. Many cards offer cash back bonuses for spending at supermarkets and department stores, and some even offer additional discounts for shopping at specific stores. Additionally, if you’re an entrepreneur, business credit cards can help you save on items you need to keep your operation running smoothly.
Just be sure you can pay off your card balances in full each month; otherwise, you’ll get charged interest. This is critical given that credit card APRs are currently near all-time highs.
How to tell the difference between making good financial decisions and underspending
Instead of focusing on just not spending money, or on buying the cheapest of everything, try to get the most value for every dollar you spend.
“Value should be the number one priority,” says Polakovic. “Value tends to have some type of return whether that be tangible or intangible.”
When you make good financial decisions, you don’t spend all your energy cutting spending. Polakovic says, “Focusing solely on expenses is missing half the equation. Even the intangible returns tend to manifest tangibly in the end as happier, less anxious people tend to have an easier time finding the abundance in life.”
If you always live on next to nothing, and you think of money management as being really hard, that can become a permanent mindset.
Being too stingy can even be addictive.
“You may find yourself staying in every night, turning down invitations and holidays, and skipping shopping trips, all in the name of frugality,” says Purnell.
If saving money doesn’t eventually improve your financial situation, so you actually have a better standard of living, maybe it’s time to rethink what you’re doing, and why.
Polokovic encourages an optimistic view. Instead of just thinking about saving money, concentrate on getting good value and on improving your life. He says, “The American dream was never to hopefully squirrel away enough acorns to just get by, but rather to achieve lavish wealth and prosperity.”
By saving money the right way, without counterproductive underspending, you can safely and effectively achieve the goals you make for you and your family.