Spending money can be tricky, especially when there never seems to be enough to go around. Most consumers intuitively know it's smart to go for the best deal, and yet the best deal isn't always the cheapest deal. Sometimes saving money means spending far more than you intended. In other words, sometimes it's better to splurge.
Here are five areas conventional wisdom says you should splurge on -- and five instances where it's definitely better to spend less (or nothing).
[See: 8 Painless Ways to Save Money .]
WHEN TO SPLURGE
Health and healthy foods. In 2012, the Commonwealth Fund's Biennial Health Insurance Survey, which sought information from 4,432 adults age 19 and older in the continental United States, found that 43 percent of America's working-age adults didn't receive medical care in the prior year because they couldn't afford it.
You may not be able to avoid medical issues, but the more you splurge early on -- buying healthy foods or shelling out a copay, for example -- the more you may save later. The Centers for Disease Control and Prevention estimates that an obese individual spends, on average, $1,429 more on medical costs each year than someone at a normal weight.
Computer. Drew Gold, an associate professor of management at Saint Leo University in Saint Leo, Fla., who specializes in technology management, says that when faced with a cheap PC and a more expensive one, he would go for the more expensive one. "You will end up with a lighter computer, better battery life and much stronger processing power. The processor is the key to the speed of a PC, and this is not the place to get cheap," Gold says. He adds, however, that PCs in the $800 range are a good place to start. "I wouldn't go for the over-the-top computers that now cost $1,500 to $2,000," Gold says.
Professional help. Nobody wants to be taken, but if you're about to hire a painter, carpenter, accountant or attorney, you likely can't afford a bad one. If you're drawn to someone with the cheapest rates, check references and do everything you can to make sure you're hiring someone competent.
Assuming you can afford it, "splurge on a good accountant," advises Charles Lankau, a professor at Wake Forest University School of Business in Winston-Salem, N.C. "About 70 percent of American families have both spouses working, and middle-class and upper-middle class families don't have time to do taxes properly. One big thing people waste money on is missed tax breaks that an accountant will be aware of. Accountant fees generally include audit protection as well."
Your home. Obviously, you can go overboard in splurging on your home, so this is a tricky area. If you look at your house as an investment vehicle, be careful about the home improvements you choose. "For example, upgrading a master bedroom or kitchen will be reflected in the home's value. Adding a swimming pool generally will not," Lankau says.
Still, this is where you spend many of your waking hours. If you aren't going to splurge and renovate your kitchen, you want to maintain your home as best as you can -- for your own comfort and to make it easier to sell someday.
Vacations. You might not expect a wealth manager to suggest splurging on a vacation, but if you want to have guilt-free fun, listen to Jeff Spears, CEO of Sanctuary Wealth Services in San Francisco. "A vacation is one of the most rewarding things that you can spend your money on, and it's something that appeals to all of the family members," he says.
Brian Porter, a professor of management at Hope College in Holland, Mich., agrees: "Psychological research has long shown that experiences make us happier than material possessions." Especially if you're frugal throughout the year with everything else, "when it comes to family vacations, splurge," he says.
WHEN TO SAVE
Air travel. Sure, you've just read that you should splurge on your vacation, but when it comes to air travel, don't, recommends Gold, who says he used to fly 100,000 miles a year for almost a decade for his job. "All airlines are the same -- a narrow seat, no legroom, and paying extra for just about everything. The prices charged for first class or business class are simply not worth it."
Look at it this way: With a vacation, not only will you have memories, you'll come back with a ton of photos to fill a scrapbook or impress or bore your friends on Facebook. How likely are you to take photos of your seat in 4D?
Warranties. "Any kind of extended warranty on electronics -- these are pretty much worthless," Gold says. "If something will go wrong, it will typically occur during the manufacturer's coverage period. It is well known that the reason ... retailers try to get you to buy these warranties is that they are the highest-margin products they sell." According to Consumer Reports, extended warranties often generate 50 percent or better gross margins for the stores that sell them. In 2013, the magazine noted that on average, it costs about as much to replace an appliance as it does to buy the extended warranty.
Credit monitoring services. Most credit monitoring services typically charge between $200 and $300 a year to keep tabs on your credit and help protect against fraud. But this is a waste of money for most people, since the financial services industry already does a credible job of protecting consumers. Banks and credit card companies routinely contact their customers regarding suspicious activity, and while most credit monitoring services will give you free access to your credit reports, you can go to annualcreditreport.com and get your own report. You're only allowed one free report from each credit bureau per year, but if you get one from a different bureau every four months, you'll be able to monitor suspicious activity.
Cars. You've no doubt heard a million times that the moment you drive a car off the lot, it plummets in value -- 20 percent, in fact, according to autos.com. Since that's inevitable, your main consideration should be the total cost of ownership, which goes beyond monthly payments and includes factors like gas, insurance premiums and repairs. If you buy an expensive car, you may pay far more than you bargained for. According to Consumer Reports, large and luxury SUVs have the highest ownership costs per year, pulling more than $13,000 out of drivers' pockets. Pickup trucks of all kinds are just about as pricey. And generally, during the first five years of ownership, the median car costs more than $9,100 a year to own, according to Consumer Reports. So spending less is the way to go -- as long as you buy a car a trusted mechanic has signed off on.
Kids' birthday parties. It's easy to spend $200, $300 or even more on a child's birthday party if you hold it at the local zoo, amusement park or party and play center. Sure, your kids are worth it, but you'd probably be better off buying a store-bought cake and holding an old-fashioned party -- then put the money you would have spent on something big into their college fund. This is especially true if they're young enough that they probably won't remember the party. They may not thank you now -- and let's be real, they will never thank you -- but your future self, when you're looking at college tuition in a decade or two, will think you're pretty awesome.
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