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Sometimes saving money can cost you more than you think. Here are three examples of how saving money can actually turn out to be expensive mistakes.
(All names have been changed.)
John and the Auto Insurance Gamble
John was a relatively safe driver. He had driven for over 10 years without a single ticket. That meant that when he hit a financial low point, he decided to save money by dropping his auto insurance. After all, he had never been pulled over by the cops, never gotten into a fender-bender — what were the odds? He’d start paying again in six months, when he got back on his feet.
Well, John burned out a headlight on a night drive, got pulled over before he realized it, and had to reveal he didn’t have any auto insurance. Now he has SR-22 insurance, a special form of insurance required to reinstate his driving privileges. SR-22 insurance is usually for people who are caught driving under the influence too many times, but it also applies to people who drive without a driver’s license or without auto insurance.
Even though John was able to negotiate a deal on his SR-22 insurance rates, he’s still paying more than he would have, had he not decided to take the auto insurance gamble.
Marie and her Healthy Teeth
Dental insurance is optional, right? Not if you want to take care of your teeth — and your budget. Marie brushed her teeth the recommended twice a day, and flossed every night. Dental insurance was not included in Marie’s employer-based insurance package, and so she elected not to purchase supplemental dental insurance — after all, her teeth were healthy, right?
Then Marie chipped a front tooth in half when she tripped on the pavement during a pick-up basketball game at her local park. Turns out dental procedures cost thousands of dollars when you don’t have insurance. Marie could have saved herself a lot of money by being a little more prudent.
How Tara and Mike “Maximized” their 401(k)s
Tara and Mike were getting ready to have their first child. In order to have a little extra cash to pay for new baby essentials, they reduced their contributions to their 401(k) plans, meaning they no longer got the employer match. To them, this felt like “saving” money — after all, it meant that they had more paycheck dollars to spend on their new baby.
Trouble is that it’s five years later and neither Tara nor Mike have re-upped their 401(k) contributions. They’ve lost out of five years (and counting) of employer matches, as well as five years of their own tax-free dollars compounding and growing in their 401(k) accounts. Yes, they have a healthy, happy child, but they’re losing money every day that could have been spent on their retirement. If they aren’t careful, their child will have to take care of them in old age with her own adult earnings — a good example of how an attempt to “save” money will actually end up costing two generations.
These are only a few of the ways where “saving” money is actually expensive. Buying a junker car that needs repairs instead of a used-but-reliable vehicle, or refusing to take advantage of a night course that will help you get a better job down the line, are all ways that people sacrifice long-term gains in favor of short-term saving.
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