Personal Finance 

7 Deadly Sins of Personal Finance: Being Penny Wise, Pound Foolish

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7 Deadly Sins of Personal FinanceIt’s fitting that the sixth deadly sin of personal finance would be this one, after making a case for adequate insurance in the 5th deadly sin. Sometimes, in the quest to be frugal, we make decisions that can be short-sighted. These decisions, which may be beneficial in the short run, end up costing us big dollars in the long run because of unintended consequences or unforeseen circumstances. This is why the sixth sin of personal finance is …

Being Penny Wise, Pound Foolish

The simplest and most relatable example I can think of is buying 12-packs of Diet Coke at the super market. At normal prices, a 12-pack costs about four bucks a piece, for a unit price of thirty-three cents each. When it’s on sale, you can get a 12-pack for only $2 a piece (5 for $10 deals in the summer happen about once a month). I would only buy packs when they were at the $2 price… and then find myself spending $1.39 for 16 oz. bottles whenever I had an urge for Diet Coke. Penny wise… pound foolish.

That was a simple example, how about a more realistic one? Let’s say you’re a young professional looking to buy a car and trying to find easy ways to some extra money. You stumble onto my post about credit card offers and think about signing up for a few cards for their bonuses. Bad idea. In the short term, you might get a few hundred bucks signing up for cards and spending the required amount but in the long term, you lower your credit score. That lower credit score will result in a car loan with a high interest rate. If you’re planning on buying a house in the next year, avoid these types of things!

Finally, here’s one that I grappled with while I was in school: working during college. My dad and I often discussed whether I should work while I was in college. His reasoning was that I was going to school to get a degree, not to work a part-time job that would distract me from the primary goal. I understood my Dad’s position, why work for $10/hr when I was paying $30,000 a year for tuition?

But I was impetuous and eager to earn my own way in the world, so I took some odd jobs and did some things on the side. Fortunately none of the jobs ever detracted from my study time (while my grades weren’t stellar, I could claim graduating early which saved a good chunk of change) but it could have. While I’m not saying you shouldn’t work in school, make sure you’re working for the right reasons. Working at a research assistant in your field of study is a smart move, working anywhere because you need the money to pay for school is a smart move, working at the local coffeehouse so you have some beer money is probably not the best.

To make sure you’re not committing this deadly sin of personal finance, weigh both the long term and short term impacts of the decisions you’re making. You don’t want to be too heavily emphasized in either direction.

{ 5 comments, please add your thoughts now! }

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5 Responses to “7 Deadly Sins of Personal Finance: Being Penny Wise, Pound Foolish”

  1. Rick Morley says:

    Another example of being penny-wise pound foolish is trying to focus on squeezing every last penny out of one area of your budget, while having a large hole in another part of your budget. For example, I find myself often worrying about how to save 30 cents on this, or 50 cents on that, meanwhile I’m losing thousands of dollars in the stock market on trades that I probably shouldn’t have made.

  2. Mary says:

    I had to laugh when I read this post. My boyfriend, who is frugal in an interesting way, was recently here visiting me along with his 12-year old grandson who had a birthday while they were here. My boyfriend went out to shop and came home with 4 12-packs of soda because they were on sale 4/$11. He was very proud of himself for this deal. I don’t drink soda and there were a total of three kids at the birthday party. Try though he did, at the end of the visit he left me with at least 2 12-packs untouched. Also the better part of what looks like a gallon of generic mouthwash, purchased locally at a bargain price and impossible for him to take home. He never quite understands the logic that spending $11 on 48 cans of unneeded soda is a worse deal than spending $3 on 2 litres. He said I could use it for cocktail mixers – orange soda & rum anyone?

  3. Line says:

    Rick had the same thought as I did when reading the article. Lately I have become very interesting in “couponing” and make great deals at grocery store. Cutting coupons and planning out strategies take a lot of time, time that I could have used on learning about retirement savings, real estate investment strategies etc. Somehow the immediate gratification in walking out of a store paying only pennies for things that I don’t really need is greater than digging into books and articles with strange words and concepts that would actually allow me to retire sometime in the future..

    Mary, not to mention the pretty pennies he would have to pay for dental care if buying cheap soda becomes a habit!

    Great article!

  4. Marc A says:

    I want to add to your comments about working while going to college. I too did the same, not for the money, but for the work experience.
    In fact my work helped me land my first job out of school managing a Major Sawmill. And the pay and benefits were fantastic.
    They not only looked at my schooling, but my ability to manage many tasks at the same time. My grades were very good and that helped.
    So I agree that at times working is a good thing and in some instances is more important than extracurricular activities. It all depends upon your own career path.

  5. Betty Byrnes says:

    I am a REALTOR was just doing some research for “A Penny Wise, Pound Foolish” article my blog when I came across your posting.

    Here’s what I found locally about buyer agent compensation that is definitely “Pound Foolish”!

    Homes for sale in my area with less than 3% compensation to the buyer agent sold for less than homes with at least 3% compensation.

    2% – 89% of asking price
    3% – 94% of asking price
    4% – 96% of asking price

    So for a $100,000 home (which we do have here), one would save $890 to $1780 in agent compensation by paying 2% to the buyer’s agent; but would lose $5000 to $7000 on the sale price of their home!

    I actually checked the figures for one company that usually offers 2% buyer compensation. Even within that office, these figures hold true. And get this – the homes offering 3% sell in half the time of those offering 2%!

    Now, don’t get me wrong, the higher compensation isn’t going to sell the home; but it will get more showings and more showings mean more buyers will see it. The more buyers who see a home, the greater the likelihood of it selling quickly for the highest dollar.

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