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Plan Well, Retire Well

Saving and investing your money
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Don't risk a lot to save a little. Or said a different way, stupid ways you can waste your money!


"Don't risk a lot to save a little." That simple phrase has stuck with me through many years since I learned it while studying for my Certified Financial Planner designation. It was one of three basic principles of risk management. (I've forgotten the other two.) The idea is, don't try to save a nickel when that decision might end up costing you $10.

Over the years, I have often thought about ways that we do or don't follow this basic principle of insurance in our daily lives. For a while, I even said it to myself as a sort of mantra when I was trying to make smart decisions.

I'm not sure why our brains don't seem to latch onto this idea. It seems hard for us to internalize this concept. Maybe it's because it's not cool to be cautious, or because we like the stimulation of taking chances. Behavioral economists can probably explain why our brains work this way. But rather than diving into that, for today I'm just going to point out some of the ways that I've noticed that we take on unnecessary risks rather than following the advice, "Don't risk a lot to save a little."

So here is my list of stupid ways we waste our money because we took a shortcut to save a few minutes or a few dollars, and ended up costing ourselves much more in the long run.

"I hate putting up with a slow computer because it's automatically downloading updates, so I turned off auto updating. I'll get around to installing the updates manually…someday."

The huge ransomware outbreak two weeks ago points out the huge risk of not updating. Without the most recent updates to your operating system, this malware can encrypt all your data. The only way to get your data back is to pay the hackers a ransom, usually $300 or more. And even if you don't get ransomware, you're apt to get some other malicious software on your computer that will wreak other types of havoc – costing you time and perhaps money to get it cleaned up.

"I'm only going to be a minute."

Those are the famous last words of many who have parked in front of a fire hydrant or skipped paying the parking meter. But saving the extra couple of minutes in would have taken to find a legal parking spot, or the pocket change to pay the meter, can come back to haunt you in the form of a ticket that could be very expenseive.

"I'll just take some of these XXXX from my worksite to use at home; no one will notice."

Technically, I suppose taking any company resource for your own use could be considered theft. However, I doubt that most employers get too uptight about the occasional personal photocopy or minor office supplies that find their way to employees' homes. But if you get caught up in the idea that the company somehow "owes" you, or that these things are free, you could cross the line where the employer does care and takes it seriously. I actually know of an employee who was taking such advantage of free snacks provided by the company that the person was fired!

"I'll deal with that later." Or, "If I ignore it, maybe it will go away."

Whether it's a bad noise your car is making, a widening crack in your basement wall, or a physical symptom that could indicate a serious illness, many of us tend to ignore a problem and hope it will go away. But time gives a problem time to grow, whether it's a minor auto or home repair that eventually requires an invasive fix with a huge price tag, or a cancer that goes from a treatable Stage 1 to a life-threatening Stage 4.

Our brains also may lead us to ignore or procrastinate about financial problems, like overspending, until the results is a mountain of credit card debt or payday loans.

And finally, let me use an actual insurance example.

"I'll just get the least amount of auto insurance possible, and save myself a few dollars."

States have minimum amounts of liability coverage that anyone owning a car is required to carry. In Illinois, it's $25,000 for injury or death of one person in an accident, $50,000 for injury or death for more than one person in an accident, and $20,000 for damage to property of another person, which is often abbreviated as 25/50/20.

If you hit an expensive car or seriously injure another person, you're going to blow through those limits really fast. And you'll be on the hook for what your insurance doesn't cover. If you'd shopped around, you probably could have gotten a policy with substantial coverages, such as 100/300/50, without paying a lot more. You might have even been able to keep your premium the same by increasing your deductible from, say, $250 to $500.

No one has the time or money to do everything we "ought" to do. But perhaps my old mantra, Don't risk a lot for a little, can help you think about what risks are worth taking and which ones aren't.


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