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Concerns about inflation and recession, news of layoffs and movements to retire early have Americans looking for ways to pinch pennies. But thriftiness has the potential to go too far. Making frugal-minded changes to get your budget under control can help get you on the right track, but can also have unintended consequences. Here are six ways being frugal could cost you.
1. Focusing on Saving Money, Not Making Money
Clipping coupons and finding deals can save you money, but it's important to maintain perspective. If you spend hours searching for coupons to save a few bucks, or stashing cash in a low-interest savings account instead of funding a retirement plan, you're missing the big picture.
In addition to seeking savings, look for ways to earn more money with work or investments. You can earn money by contributing enough to your 401(k) to take full advantage of any employer match, experimenting with investing or getting a second job or side gig in your spare time. If your current income isn't enough for your expenses, ask for a raise or look for a new job. You can also go back to school for degrees, training or certifications to boost your earning power.
2. Neglecting Home and Auto Maintenance
Not paying for professional maintenance for your home or car can save you money in the short term, but can ultimately cost you more than you save. Neglecting necessary auto upkeep could shorten your car's life, so you'll need a new car sooner. A poorly maintained car may need costly repairs down the line; steering or braking malfunctions could even put your safety at risk.
Without regular home maintenance, small problems like a leaky roof could balloon into bigger issues, such as water damage or mold that requires expensive repairs. Over time, structural problems or electrical hazards could develop, reducing your home's value, exposing your family to unnecessary risk and driving up your home insurance premiums.
You can save money by shopping around for competitive prices on home and auto maintenance, building maintenance costs into your budget and learning to perform simple maintenance tasks yourself.
3. Skimping on Insurance
The cost of homeowners insurance, life insurance, auto insurance and health insurance can quickly add up. High prices could tempt you to scrimp on insurance or go without coverage altogether. But without adequate insurance, a house fire, auto accident or medical emergency could leave you footing a massive bill. A lawsuit following a car accident or high medical bills for a hospital stay could decimate your savings or even force you into bankruptcy. Should you die without life insurance, your family might struggle to pay the bills.
You can save money on insurance by assessing your coverage needs, researching your insurance options and deductibles, comparison shopping for the best rates and using health savings accounts (if you're eligible) to cover out-of-pocket medical costs.
4. Prioritizing Saving Money Over Relationships
When your frugal habits start to affect your personal life, it could be time to loosen the purse strings. Do you and your partner frequently argue about finances? Is your reluctance to do anything that costs money starting to isolate you from friends and family? Becoming overly anxious about money could hurt your mental health.
You can save without sacrificing your friendships, family or peace of mind by finding affordable ways to socialize, such as holding a potluck, hiking with friends or hosting movie nights at home. Set financial priorities with your partner to get on the same page, and make room in your budget for the occasional splurge.
5. Shortchanging Your Health
Subsisting on a diet of dollar menu meals and canceling your gym membership might save money, but these changes will eventually catch up with you. Poor diet and a sedentary lifestyle can cause chronic conditions such as diabetes or high blood pressure, putting your life at risk and requiring costly treatment.
If your health insurance plan doesn't include dental or vision coverage, you might skip dental checkups and eye exams. This could lead to expensive dental procedures, such as root canals or implants, due to untreated cavities or gum disease. Worse, problems such as diabetes and heart disease might go undiagnosed; dental and vision examinations can detect early signs of these and other serious conditions.
You can save money by finding free exercise options, such as walking in the park or working out with online videos. Cut food costs by making a grocery list, cooking at home, focusing on healthy staples and seeking sales and coupons. Consider purchasing private vision insurance or dental insurance, or investigate dental schools or community clinics for lower-cost dental services.
6. Wasting Money on Cheap Items
Once you start seeking savings, it's easy to get hooked on the "thrill of the hunt." You may find yourself making weekly trips to yard sales, thrift shops and discount stores, or buying groceries in bulk to get discounts. But it's waste, not savings, if you buy things you don't need or end up throwing out spoiled food.
Skimping on items you use every day, like clothing, furniture, housewares, electronics and tools can cost you money, too. Cheaper goods tend to wear out or break faster than well-made ones―and purchasing frequent replacements could cost more than buying better quality in the first place.
Save money by shopping only when you really need something. Before shopping, research products to find the best quality for the money, and watch for sales or clearance events where you can get the items for even less. Buying used or refurbished furniture, electronics and clothing from reputable retailers can also save on durable products. Shopping with credit cards that offer extended warranties can protect your purchase longer; using rewards credit cards and shopping portals helps maximize savings.
The Bottom Line
Living frugally can pay off, but saving money shouldn't be your only financial goal. Planning for the future, increasing your earning power and maintaining a good credit score are also important steps to financial security.
If you always pay with cash, you may not have a track record of using credit responsibly. Getting a few credit cards and paying your bills on time can help you build a positive credit history without overspending. Check your credit report to make sure your accounts show up, and set up free credit monitoring to keep an eye on your credit going forward.