It’s understandable why you like to save money. After all, if you’re like most people, you’re not earning enough to buy everything you want. Moreover, even if you’re wealthy, you’re unlikely to buy something at store A when you can get the exact same thing at store B. You’d also consider it unwise to pay more for one travel package to Disneyland when you can get a much better price with another travel agent.
Since most businesses understand the value of offering savings to attract more customers, with many companies even making it a branding statement—Walmart encourages you to pay less and live better and PayLess Shoes encourages you to pay less for your shoes, boots, and sandals—it’s easy to fall into the automatic mindset of spending as little as possible.
However, if that’s your only spending strategy, you could be courting trouble. Sometimes, choosing the cheapest option possible may not necessarily be the wisest financial decision to make.
Let’s look at a few examples where it’s actually a good idea to pay more:
1. Why it’s not always a good idea to buy the cheapest auto insurance.
Whether you believe in the value of insurance or not, the fact is that most states legally demand that you have to buy auto insurance to drive on their roads. However, if you live in a state where coverage is not required by law, you will find that most drivers prefer to be insured. Meanwhile, if you live in a state with liability only, you might be able to get full coverage for just a few dollars more per month.
Moreover, even in states like New Hampshire and Virginia, you are still required to be financially responsible if you have an automobile accident. According to an article in The Balance about states that don’t require auto insurance, ”Although car insurance is not mandatory in NH, you are still responsible for damages up to $50,000 for liability and $25,000 for property damage. Expect a suspended license and registration for not being able to pay for damages of an accident you or your vehicle caused.” As for Virginia, the article explains, “You have the option to pay the state $500 annually but that would not provide any coverage. You would still be held liable if you caused an accident.”
2. Why it’s not always a good idea to buy the cheapest car.
Yes, it’s much better, economically, to buy a used car rather than a new car. The Kelley Blue Book estimates that a new car will cost $33,500 while JD Power estimates that a used car can cost about $20,000. Consequently, it makes sense to pay $13,500 less if the used car is in excellent condition. In this sense, paying less is a good idea. However, you run into trouble when you pay too little for a car because the buyer is only selling it for less because it has some major problems. Over the years, the money you save in your initial costs will be spent in fixing up the car. Even if you do most of the repairs yourself, you still have to pay for parts and put in plenty of time in labor. And, of course, there will be those times when you will still need to take it into a shop because you don’t have the necessary equipment, tools, and facilities.
3. Why it’s not always a good idea to buy the cheapest health insurance.
Your health is your most important asset. Obviously, you want to get health insurance that will give you the best quality of care. The reason some health insurance is cheaper than other health insurance is because you get far less coverage. When it comes to your health, you can’t afford to take risks.
4. Why it’s not always a good idea to buy the cheapest new appliances.
Home appliances improve the quality of your life. Frankly, the frustration of putting up with clothes that never look clean, dishes that don’t get washed properly, and refrigerators that don’t preserve food well is not worth it. Cheap appliances don’t work as well as high quality appliances. Additionally, the money you save in buying cheap appliances is something you will eventually fork out because of the frequent need for repairs. Unlike new appliances which come with a warranty, you have to deal with slow repair times and paying out of your pocket.