Penny Wise Pound Foolish Money Management Traps
Don't be penny wise, but pound foolish. You've probably heard this before. In general terms, it means don't focus too much on small things while letting bigger things go unattended.
With your budget, penny wise / pound foolish has a lot to do with good intentions that don't pan out like you'd hoped. To avoid this trap, try to focus on the bigger picture when making a budget decision. Take into consideration the effects of your choices, and be flexible enough to amend them if necessary.
Here are ways you might think you're saving money, but end up spending a lot more than you'd planned:
Don't Go out of Your Way for a Sale
If gas is 2 cents cheaper per gallon across town, then that's good news for the people across town. It doesn't do you or your family much good if you have to drive many miles to buy at the reduced price. The same applies for any sale item. Cheaper milk ends up costing the same, or even more, if you spend up the difference in gas to get there.
Stepping back from the narrow-focused idea of saving money on a purchase means considering every factor. On the flip side, sale prices might be worth it if you pass through that area on your way to and from work, or if you can plan one shopping trip to hit all of the sales.
Cheap and Frugal Are Different, and Frugal Might Cost More
Cheap sounds like you're saving money, but oftentimes you're not. Cheap items cost less, and that's where some shoppers stop debating and start buying. Unfortunately, cheap may have more to do with quality than price.
A good-looking sweater at a knockoff shop might temp you into buying. It looks nice on the hanger, but how will it hold up in the long run? Sometimes being frugal means paying more, believe it or not, at least with items that are supposed to last.
If you spend more for better quality, your purchase won't require replacement soon, if ever. Buying cheap might find you making the same purchase more than once, when the items wear out.
Avoid Saving the Wrong Way
It's hard to imagine that there's a wrong way to save. But there is, and many people fall prey to it. Lumping everything into one account and hoping for the best is the wrong way, and it can have long-term, detrimental effects on your budget.
Savings accounts should be separate and categorized because not all savings goals are the same. Discretionary funds shouldn't mix with emergency savings, and retirement certainly needs its own category to grow.
When you separate savings accounts, you know how you're approaching each goal and can make adjustments based on need.
Mint.com can help you create a budget that you can live with. More important, it helps you stick to it with handy alerts when bills are due, and graphs that show progress and areas for improvement.
With Mint.com budgeting software, you can stop being penny wise and pound foolish, and find yourself in a more financially sound place tomorrow. Sign up for your free account today and learn how.