Zombie Economics: When Saving Doesn't Pay

We all love a good bargain, but it doesn't always pay to be stingy.  Rick Emerson, author of "Zombie Economics," stopped by to tell more about when penny-pinching is a bad idea.

When to Skimp...and When Not To:

1)    Insurance
It can be tempting to get rid of something that, by definition, you’re probably not using (and that you hope to never use.) But we buy Band-Aids and smoke detectors for a reason: you never know when something is going to happen. The same rule applies to insurance.

Homeowner’s Insurance can seem like an easy expense to cut, and it is. What’s not easy is replacing your house if it’s damaged or destroyed by fire, or a flood, or anything else that’s out of your control. Paying one mortgage is hard enough – imagine also paying the mortgage on a house that no longer exists.

For those who rent, insurance is just as important. Renter’s Insurance is dirt cheap (as low as twelve dollars a month), and provides an almost unbelievable benefit if disaster strikes: the replacement of nearly everything you own.

Bottom line: when trying to save a few dollars, don’t cut your insurance coverage. Consider raising your deductible instead: this can sometimes save you up to 15% on your premiums.

2) Travel
A nine-hour layover in Kalamazoo is nobody’s idea of a good time. Neither is packing yourself (and your family, and your luggage) into a rental car the size of a toaster. When traveling for business or pleasure, take a moment to consider your money-saving steps – and what you’re giving up in exchange. While changing planes three times might save you a few dollars in the short term, the time it takes is something you can never get back. Also remember that the more complicated your travel plans, the more likely something is to go wrong. (Non-stop flights, for example, may cost more, but they’re far less likely to lose your luggage, something which costs you time, money, and sanity.)

The same goes for lodging: yes, a hotel ten miles from the Vegas Strip will cost far less, but if you end up spending the difference on cabs and sunstroke treatments, what are you really saving? There’s almost always a middle-ground between first-class and no-frills…you just need to know how to look.

3) Tools and other home “hardware”
I’m a cheapskate. I know how hard it is to pass up the 89-cent lightbulbs…especially when the others are four dollars each. It took me a long time to finally realize that I really was doing myself a disservice…what seemed like savings was really just more trips to the store, more pollution in the world, and more chances to electrocute myself while changing the porchlight.

When it comes to home tools and hardware, the goal is to buy once, and then forget about it…for years, if possible. Flashlights, hammers, scissors, kitchen knives (especially kitchen knives), cookware, and, yes, lightbulbs…are available in a range of styles and prices, and “cheap” is often the enemy of “inexpensive”. Buy quality tools at a reasonable price, and save yourself time (and money) down the road.

A good place to start: TheSweethome.com, a site which attempts to recommend the single-best version of certain products.

4) Your retirement plan
If you have an employer who matches donations to your 401(k), it’s one of the very best opportunities to earn money easily…make the most of it. Remember: if your company matches 50 cents on the dollar up to six percent of your income, then you’re essentially earning a 50% interest rate on six percent of your salary….which is a lot of money. As always, if you have questions about your 401(k), a good place to start is your company’s HR department…but whatever you do, find a way to donate the maximum allowable amount. Skimping here means throwing away free money later.

5) Dental work
This one is tricky, because it’s half skimping and half abject fear. Even if your teeth aren’t giving you any problems, it’s easy to avoid going to the dentist…particularly if you’re afraid of what they might say. Once you’re in the chair, the dentist might say you have a small cavity, or a minor issue with one of your teeth. Then they give you the option of doing nothing…which is almost impossible to resist, especially since it means you won’t have to pay $300 for a filling.

But remember this: there is no dental problem which gets better on its own. Ever. At all. Dental issues only get worse…until they’re addressed. By that time, a simple filling may have gotten worse, and you may be looking at multiple sessions in the chair and a $5000 bill.

Minor pain in your wallet (and mouth) is better than major pain later on. Everyone pays the dentist…the question is how much.

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