Coupon clippers and other frugal types are under constant scrutiny by those who are eager to call them “penny wise but pound foolish.” “You might be saving pennies there,” the naysayers say, “but you waste dollars on the big things.” While penny pinchers who overlook big savings are common enough to make “penny wise but pound foolish” a cliché, I more often see those who are pound wise but penny foolish.
In fact, those who love to call others “penny wise but pound foolish” are often the ones who are the most penny foolish. The very act of scoffing at coupons and other means of saving small amounts of money demonstrates a lack of penny wisdom. No, a single dollar-off coupon won’t pay your mortgage, but consistently saving a quarter here and a dollar there might. For most people, the bulk of spending isn’t in a few big purchases but in regular small purchases – a tank of gas, a carton of eggs, a package of light bulbs. Likewise, most savings opportunities are for small amounts.
People who are pound wise but penny foolish shop around for the big items, carefully evaluating each home, vehicle, and appliance purchase, but they quickly spend their savings on less expensive things they don’t really need and never use. It doesn’t matter whether money is wasted on paying too much for a dishwasher or on buying a book that never leaves your shelf; that money is still gone.
Even making large purchases after carefully comparing prices can be unwise (both by the penny and the pound) when those purchases are meant to replace things that still function perfectly well. Unnecessary replacements and upgrades can negate savings when the life of a product is cut short. For example, if you spend $900 instead of $1,000 on a plasma-screen television that normally lasts three years, each month of use should cost you $25. However, if you replace it with a newer model that catches your fancy after only two years, even though the $900 television is still good, that original television costs $37.50 per month of use, and you actually wind up wasting $50 instead of saving $100. (The difference between the two per-month costs would add up to $150 over the year that you’re using the new television instead of the old one.)
Penny foolish people don’t know what prices should be for small items. They say, “Well, it only cost $2.00, so I bought it.” It doesn’t matter to them that most stores sell the same item for $1.00. Dollar stores make a lot of money this way. Shoppers assume they are saving money by shopping there, and they do save on some items, but on other things, they will spend $1.00 for something for which they would only pay $0.59 at the grocery store.
Some penny foolish people ignore the price tags completely. I can’t imagine buying anything without looking at the price, but apparently, it’s a common practice for quite a few people. According to Paco Underhill, author of Why We Buy, fourteen percent of women and eighteen percent of men don’t look at price tags when they shop. Those who don’t look at prices are highly susceptible to paying far more than something is worth.
To best manage your money, it’s important to find a balance. Don’t be pound foolish or penny foolish. Instead, know what the things you buy should cost and take time to find good prices for all your purchases. Buy only things you will use, and keep them until they truly need to be replaced. And don’t laugh at any methods of saving money, whether they save $0.25 or $2500, without first trying them – or at least seriously considering them.
Image courtesy of Jonnny