Have you heard the old saying about somebody who keeps “missing the forest for the trees?” Perhaps you've heard it expressed as someone “not seeing the big picture,” because they're “too focused on the details.” Or, less politely, you can just say someone's “missing the point.”
However you word it, if you get careless it's easy to slip into that mindset yourself, especially where your personal finances are concerned. There's even a money-specific proverb about it: the English spoke of people who were “penny wise and pound foolish,” which in American currency becomes “penny wise and dollar foolish.”
I suspect that, at least for some people, the problem comes from tripping over the word “save:” it means different things in different contexts, and when you confuse one meaning for the other, the consequences for your household budget can be catastrophic.
The online Merriam-Webster dictionary lists 14 different definitions for “save,” but these are the two most relevant here:
a: to put aside as a store or reserve :accumulate <saving money for emergencies>
b: to spend less by <save 25 percent>
So: when people say “I saved $100 today,” they could be using definition A to mean “I added $100 to my savings fund,” or definition B to say “I bought something, and spent $100 less than I might have.”
But sometimes people confuse B with A, somehow, so that “spending $100 less than I might've” gets mistaken for “increasing my savings/net worth by $100.” Worse, they manage to completely overlook the fact that buying something still requires you to spend your money — even if you did save $100 off the price.
Have you strolled through one of those touristy national-chain “outlet malls” recently? You're not likely to find any truly good bargains there anymore, but you will see lots of price tags that look like this:
RETAIL PRICE: $40
OUR PRICE: $10
YOU SAVE: $30
Many manufacturers today actually produce lower-quality knockoffs of their own high-end merchandise specifically to sell in outlet stores. Last March, the Federal Trade Commission put out a “Consumer information” blog post about outlet mall shopping, and offered some examples of how this is done: “plastic might replace leather trim on a jacket, or a t-shirt may have less stitching and a lighter weight fabric.”
But, for the sake of argument, let's assume that identical, same-quality item actually is worth $40 in regular retail stores, and you buy it for $10. You have indeed saved $30, according to the earlier B definition — but you have also spent $10, which is the exact opposite of the A definition “to put aside as a store or reserve.” Now you have 10 fewer dollars to spend somewhere else (or you owe an additional 10 bucks on your credit card balance, plus interest charges if you don't pay off that balance in full when the bill next comes due).
Of course, if you already have a decent-sized emergency savings fund and are unburdened by debt, there's nothing remotely wrong with spending that $10 to buy whatever, even if you don't need it. And even if you are trying to pay down debt and build up your savings, of course you still need to buy things sometimes, and should definitely look for ways to find the best (lowest) price for those things: avoid rent-to-own or “buy now pay later” shopping on credit, stockpile non-perishable consumables when they're on sale so you never have to pay full price for them, shop secondhand or in overstock stores when you can, and so forth.
Just remember not to let those two definitions of “save” get mixed up. I'll admit: I was a little careless about that in my younger days, especially when I'd first discovered the truly amazing bargains to be found in local thrift stores.
Longtime thrift shoppers like to brag about their super-amazing bargain finds, so let me share some of mine here: I routinely pay $2 to $8 per pair for various brands of blue jeans that sell new for $50 to $90. I have a few silk or velvet jackets and blazers in various colors, the most expensive of which cost me $7; and my single best thrift-shop clothing find was the day I paid $20 for a black, full-length fake-fur coat with brushed-metal buttons, in perfect condition except a couple of the buttons were loose (took less than 10 minutes to fix) – I don't know that specific coat's original retail price, but a few weeks later I saw a very similar one, with the same label, selling in an upscale department store for $980.
A thousand-dollar coat! And I got it for only 20 bucks! Which is a pretty good price to pay for a warm coat, such as I need to wear every winter, except – at the time, I already had something like six or seven beautiful winter coats, in addition to however-many jackets, blazers, cardigans, frock coats, spring coats, shawls, ponchos and two honest-to-Zod English capes, one of which nets me unsolicited compliments to this day (especially from steampunk fans).
Of course, I paid amazingly low, brag-worthy prices for every single one of those useful and lovely garments (my other coats and the capes all cost between $3 and $10 apiece), but the truth is: in those days I was still in debt, with an abysmally low cash reserve, and occasionally wondered why my finances were so poor when I was always so thrifty, never paying anywhere close to full price for clothes and home décor and other necessities … why, remember the time I saved 960 bucks on just one gorgeous winter coat … not until I literally ran out of closet and drawer space to hold any more garments did it finally sink in: “I'm not saving money buying all these things, even if they are great bargains and individually not-expensive; I'm spending money, and most of it on stuff I don't need.”
So even if you consider yourself a frugal bargain shopper, take care to avoid the trap of confusing one form of saving for another.