Articles

Nine Times You Can't Afford to Skimp

By Liz Pulliam Weston April 14th 2008

Money isn't everything, especially when it comes to your safety, your comfort or your time... and especially your life.

There's plenty of stuff where quality doesn't depend on price. Generic aspirin is as good as the heavily marketed stuff, for example, and many store-brand products are turned out by the same factories that make their name-brand counterparts. There are other areas where you're not obligated to spend at all. Nobody needs an Internet-surfing cell phone, a luxury car or a flat-screen television. There are even people who get by without cell phones, cars and TVs.

But there also are some places where you shouldn't even think about skimping -- areas where the potential drawbacks outweigh any savings. Even when your budget is really tight, you should try to make room for the following:

1.  Car maintenance. You've heard the saying "penny-wise, pound-foolish"? This old English phrase means that scrimping on a small expense often leads to a much bigger one. That's exactly what will happen if you wait too long to change your oil, swap your filters or investigate that weird grinding noise.

If you have a vehicle, you should invest some effort in finding a good, reliable mechanic -- yes, they do exist -- and then make sure your budget includes money for regular maintenance and repairs. If you're not sure how much to set aside, review last year's bills and inflate the number by at least 10%.

2.  Classic clothes. You've got to wear them every day, so you might as well make sure they hold up over time.

This doesn't give you leave to buy designer togs if you've got a Wal-Mart budget. But if you're choosing between a cheap knockoff that will fall apart after three wearings and something classic that costs more but that will still look great -- and that you'll likely want to wear -- in 2010, then your choice should be obvious.

Quality is especially important for footwear. Not only do poorly made shoes tend to fall apart, but they can cause all kinds of foot problems that can be expensive to fix. You can find deep discounts on quality footwear by buying during sales, at the end of the season and by scouring places warehouse shoe stores.

I'm assuming, by the way, that you either pay cash for your apparel or that you pay off the credit card bill in full when it arrives. Clothes, no matter the quality, are not investments and should not be financed. If you can't pay cash, then make do with what you've got until you can.

3.  Computer memory. You always need more than you think -- unless you're some kind of computer monk who never adds new software, downloads a tune or plays a game. Save yourself headaches and tech-support calls by loading up when you buy a new machine; if you're adding memory to an older machine, consider maxing out the available slots.

In a computer buying guide, The Wall Street Journal's Walter Mossberg recommends a minimum of 2 gigabytes of random-access memory (RAM), the kind of memory that determines how quickly your machine loads and runs programs. He recommends as much as 200 gigabytes of hard-drive space to store music, video and photos. Again, computers are not an appreciating asset, so pay cash.

Thriftiness versus health

4.  Family safety. Safety experts say you should have a smoke detector outside every bedroom and a carbon-monoxide detector on every floor, plus escape ladders for every bedroom above the first floor. (You can find basic detectors for less than $10 each; ladders can be had for less than $40.)

Solid door and window locks are a smart security measure, but remove or replace any window bars that can't be opened from the inside.

5.  Internet access. In most areas, the price for high-speed Internet access has dropped significantly as competition between cable and DSL providers heats up. In some cities, you can get basic broadband for less than $20 a month. Sure, dial-up is cheaper still -- you can get it for $10 or less -- but your time has a value, too, and you're going to face increasingly lengthy waits as Web sites cater to the fast-access crowd.

If there's still a huge gap in your area between the price of dial-up and broadband, you may decide to wait, for thriftiness' sake, until it shrinks. But otherwise, investigate your options and upgrade now. Most people who have broadband wouldn't go back.

6.  Home inspections. It's rather stunning that people will spend hundreds of thousands of dollars on a house but refuse to cough up $400 or so on an inspector who could warn them that they're throwing their money away.

Talk to any group of smart real-estate investors and you'll hear hair-curling stories of properties they fell in love with, only to have inspectors discover the house was about to fall down or needed tens of thousands of dollars in repairs. Having this knowledge helped them pass on bad deals or at least negotiate lower prices.

During the U.S. real-estate boom, there were some buyers who made the (weak) argument that insisting on an inspection would cause the sellers to choose another bidder, in today's slower markets, there's really no excuse not to hire an expert to inspect a home before you buy.

A good night's sleep: Priceless

7.  Mattresses. You don't have to drop a couple of thousand dollars on a specialty mattress to get a good night's sleep, but you should steer clear of used mattresses (who knows how much life they've got left?) and really cheap ones.

Consumer Reports says that any name-brand queen size mattress with a list price of $800 or more should provide you a decade's worth of service. But you don't have to shell out that much for a good mattress -- the list price in a mattress store is about as meaningful as the sticker price on a car. If you're patient and wait for a sale, or are a good negotiator, you should be able to get that mattress for 30% to 50% less.

And when it comes to comfort, expensive isn't necessarily better. Some of Consumer Reports' testers hated the priciest mattresses. What matters is what feels good to you, so lie on the bed for at least 15 minutes before making up your mind.

8.  Teenagers' cars. A vehicle is not a birthright, as I wrote in "Should you buy your kid a car?" But if you're going to buy your kid wheels, or allow her to buy her own, the car should have good safety ratings.

Safety may be even more important in your kid's car than in the family vehicle. Why? Because teen drivers are, on average, pretty terrible. Their crash and fatality rate is much higher than any other age group, overall and per mile driven. So they're more likely to need airbags, restraint systems, roll bars and crumple zones than their doddering old parents.

The exterior doesn't need to look like much. After a few fender benders, it won't look like much anyway. But the interior should do its best to keep your progeny alive.

9.  When your ethics are at stake. A recent poster to the Your Money message board suggested a money-saving strategy: taking paper towels from a workplace bathroom for home use. Other posters promptly called that "frugality" for what it is: stealing. If your efforts to trim your spending wander into the unethical (or the stingy -- meaning someone else is paying for your frugality), then your scrimping has gone too far.

Three deadly mistakes every homebuyer should avoid!

Deadly Mistake #1: Thinking you can't afford it.

Today, buying the home of your dreams is easier than ever before.  Many people who thought that buying the home they wanted was simply out of their reach are now enjoying a new lifestyle in their very own new home. Buying a home is the smartest financial decision you will ever make.  In fact, most American and Canadian home owners would be financially broke at retirement if it wasn't for one saving grace - the equity in their home.  Furthermore, mortgage rates are more flexible today than ever.

Real estate values have always risen steadily.  Of course there are peaks and valleys, but the long term trend is a consistent increase.  This means that every month when you make a mortgage payment the amount that you owe on the home goes down and the value typically increases.  This owe less-worth more situation is called equity build-up and is the reason you can't afford not to buy. Even if you have little money for a down payment or credit problems, chances are that you can still buy that new home.  It just comes down to knowing the right strategies, and working with the right people.   

Deadly Mistake #2: Not hiring a buyer's agent to represent you.

Buying property is a complex and stressful task. In fact, it is often the biggest single investment you will make in your lifetime. At the same time, real estate transactions have become increasingly complicated. New technology, laws, procedures and competition from other buyers require buyer agents to perform at an ever-increasing level of professionalism. For many homebuyers, the process turns into a terrible, stressful ordeal. In addition, making the wrong decisions can end up costing you thousands of dollars. It does not have to be this way! 

Work with a buyer's agent who has a keen understanding of the real estate business and who is on your side.

Buyer's agents have a fiduciary duty to you. That means they are loyal to only you and are obligated to look out for your best interests. Buyer's agents can help you find the best home, the best lender and the best inspector. Best of all, in most cases, the buyer's agent is paid out of the seller's commission, even though he/she works for you. Trying to buy a home without an agent at all is, well... unthinkable.

Deadly Mistake #3: Getting a cheap inspection.  

Buying a home is probably the most expensive purchase you will ever make.  This is no time to shop for a cheap inspection. The cost of a home inspection is very small relative to the home being inspected (usually less than 1%). The additional cost of hiring a certified inspector is almost insignificant. As a homebuyer, you have recently been crunching the numbers, negotiating offers, adding up closing costs, shopping for mortgages and trying to get the best deals. Do not stop now. Do not let your real estate agent, a patty-cake inspector or anyone else talk you into skimping here. NACHI front-ends its membership requirements. NACHI turns down more than 1/2 the inspectors who want to join because they can't fulfill the membership requirements. NACHI certified inspectors perform the best inspections by far. NACHI certified inspectors earn their fees many times over. They do more, they deserve more, and yes they generally charge a little more. Do yourself a favor and pay a little more for the quality inspection you deserve.