Personal finance, and the difference between good and bad deals, are always a matter of context. What could be a great deal in one context could be a lousy deal in another. Sometimes spending more money is better than spending less; other times, it's the opposite.
When I read this article on Money Talk News which listed ten “dumb deals” that people fall for, I disagreed with most of them on the basis that these “dumb deals” were actually false economies in disguise. As in, you feel like you've gotten a deal, but it actually ended up costing quite a bit more than whatever money wasn't spent.
There were several themes to these ten items. The premises of three of these themes were questionable, which I'll discuss below. (That, and ultimatums such as “There’s no excuse for paying to download e-books” just encourage me to say: “Challenge accepted.”)
- Libraries. The premise: “Why buy ebooks / books / DVDs / magazines when you can just borrow them from the library for free?” Why it can be a false economy: Well, here are several reasons:
- You have to go there twice — once to pick up the book, and another time to return it. That takes time, and probably takes gas. The county library is more than a 15-minute drive away, and the bigger one in the neighboring town is more than a half-hour away. That doesn't sound anything like “free” to me.
- You can expect to wait a while for the popular books. My wife waited four months after the release of the latest Rick Riordan novel to check it out from the library. The library bought twelve copies, and she signed up prior to the release of the book, and she was 95th on the wait list.
- Same thing with DVDs: You have to go there twice. It doesn't take too many trips there to make a Netflix subscription cheaper. Those DVDs are delivered to your door, and the selection of what you can watch far exceeds what any county library can offer. If you love to watch movies, there are frugal ways to do it, but going to the library is at the bottom of the list, as far as I'm concerned.
- And once again, with magazines. The only subscriptions we get in our house are ones we read cover to cover and got through a discounter, or ones that I got free with airline points that were about to expire.
- Generic vs. name-brand. The premise: “Why buy name-brand medications or name-brand anything else when generics are cheaper?” Why it can be a false economy: Sometimes the generic version is not only not “just the same,” but also can be detrimental. It's not one-size-fits-all:
- I know for a fact that sometimes the generic version of a medication has side effects different from, or is less effective than, the brand-name medication. We had to get a formulary tier exception for one medicine my wife was taking because the generic wasn't doing as it should. She did research and her doctor agreed.
- Generics sometimes are just not a substitute. Generic foods have a different, usually cheaper, composition. Generic batteries leak and corrode the insides of your electronics. Sure, give generic or store-brand a try, but it's silly to go generic at all costs.
- Free vs. paid software. The premise: “Why pay for antivirus software / phone apps when there are free ones out there?” Why it can be a false economy: It ignores the cost of free. Pay with money, or pay with time and frustration.
- Using some free antivirus software, frankly, is a battle of wills. Sure, you do get some functionality at no out-of-pocket cost, but then the “fun” begins. Buttons to features that look great, but are only on the “premium” version of the product, or advertisements, or click-through gates that offer you the chance to upgrade when you start up the program. Every. Single. Time.
- Some great apps are free, true. But free or “Lite” versions of apps limit what you can do with them. There was a free spreadsheet app that I downloaded to my daughter's tablet to get her to track her cash jars. It was noticeably clunky, and lacked any of the features that make Excel easy to use. The result was that it really didn't work.
Paying for something, or paying a bit more for something, isn't dumb at all if you've discovered the hidden costs of the cheaper alternative.
It's quite smart, actually.