Are You Cent Smart But Dollar Foolish?

But here comes the incredible part. What did he do with the new TV once he got it? He kept it in the box gathering dust for a further six months prior to setting it up. His current house did not have the room for it and he was buying the TV for his new house. This is a classic case of "cent smart but dollar foolish". Why not just wait the six months until he was ready to set it up? The prices would have come down (as with all technology) and he could probably have purchased it for a lower price. Or he could have bought a newer model for the same price, not to mention having his money sitting in the bank account earning interest.

The book The Millionaire Next Door talks about this same story. It gives a common example to new car buyers. They want the best price (and this is a good idea) so they have a number of tactics to get it, including:

1. Writing letters to dealers and offering them to bid for their business.

2. Calling dealers prior to the end of the financial year, in an effort to get them to sell it cheaper to make their operating profit look better to their accountant.

3. Not letting distance bother you when looking for a car, including ordering a car from out of state if the price is cheaper.

4. Offering to write the dealer a letter of recommendation for a price reduction.

5. Asking to talk to the owners rather than the salesperson to get the best deal possible.

So as you can see a lot of new car buyers really go to a lot of trouble to get the best price. But what the book found was that most people who put in this extra effort really never consider the possibility of a second hand car, even if it's less than one year old. Now this strikes me as absolutely mad. If you are so concerned about price, you could save up to 25% just by getting a slightly used car. Sure, you may only have a slight whiff in the air of the new car smell, but that's a lot of money for an odour.

You should never get confused between saving real money and saving money on stuff you simply don't need. Don't be "cent smart, but dollar foolish".