In “How to Pinch Pennies in the Right Places,” The New York Times offers advice to avoid what writer Sendhil Mullainathan refers to as “misdirected frugality.” While you may know that you don’t really “save” when you buy things on sale (you only save when you actually put money away), it is still easy to get caught up in a deal without realizing that it is not doing much for your budget.
The article points out how people with less money understand more about the value of a dollar than those who are wealthier because they know that “A dollar saved is a dollar to be spent elsewhere, not merely a piece of token accounting.” People are free to spend more have a tendency to look at the percentage they can save and pay less attention to the dollar amount, but as Mullainathan writes, “…it is dollars — not percentages — that will be in your bank account.”
This misguided thinking can go beyond shopping the latest sales. We may also do the same think with our investments. The article suggests that we may think nothing of spending a lot of time online looking for a clothing deal but won’t look twice at mutual fund fees. While we’re hunting down jeans, we could be looking for a mutual fund that charges less and keep a lot more of our money. But as Mullainathan observes, we will get a much better feeling telling our friends that our jeans were 30% off than we will if we look for a mutual fund with lower fees. If you brag about finding a better mutual fund, some of the friends who will applaud a jeans purchase may find such talk uninteresting or even annoying.
You don’t want to pinch pennies and lose dollars. Investing the time and money to work with a Fee-Only financial advisor can mean that you are getting help in financial planning and making sound investment decisions but not doing all of the work on your own.