Frugality is in many ways a sign of the times. A few decades back an extravagance was all one saw in the media. People wanted to live large and show the world that they were doing so. Of course, that’s what led the world into the place it is now. The economy is in a rough spot, and people have grown up shouldering a fairly difficult burden.
The end result is a net positive in a way. Frugality and putting value on every dollar is a virtue. But at the same time, it’s not always an easy path to follow. One of the larger problems is that purchasing decisions aren’t always clear.
Shoes often come up as an example. If one has limited funds, then it’s tempting to buy the cheapest pair of shoes around. However, consider why those shoes are priced so far below the average. It’s often because the manufacturer skimped on materials and quality control. The shoes might only last half as long when compared to slightly more expensive shoes. So one essentially saved money in the short-term. But in the long-term, one ends up buying multiple pairs of shoes instead of just a single pair.
This isn’t to say that all low-priced items are bad. The allegory highlights the fact that one can’t always go by something as simple as a price tag. It’s similar to another example of a slightly leaky pipe in one’s home. It’s easy to put off repairing it under the guise of frugality. A small drip isn’t much of a problem after all. But that drip will usually progress in scope and eventually turn into a very costly repair job, while the initial work to repair the smaller leak would have been fairly low in comparison.
Some people, like Len Stauffenger, ESQ, hear similar stories fairly frequently. This is because they’re professionally focused on helping people with taxes. Anyone in the industry is well aware of how easy it is to fall into that flawed sense of frugality when dealing with tax forms.
To understand the comparison, one needs to go back to the example of a leaky pipe. When people get ready to do their taxes, it’s often with an intent to pay as little as possible. Now, the underlying intent to stay as frugal as possible is absolutely right. No matter how much or how little money one has, it’s still important to make the most out of it.
But the intent can go in two directions. In one direction, the person in question looks for professional help. In the other, he decides to go it alone and try to save as much money as possible.
He might try to just get it done as quickly as possible. The intent here is to simply save money by not paying for tax preparation. Or he might try to carefully look into every possible way to deduct items and save money within the forms themselves. This is further complicated by the fact that frugal people tend to have extra income sources. This makes their taxes even more complex than the already difficult norm.
When someone tries to save money by handling the tax reparation on their own, it’s usually an overall loss. The main reason is that there are a huge amount of deductions, credits and overall savings to look for. However, these usually aren’t going to be readily apparent to anyone outside the field. As such, someone going it on their own will end up losing a considerable amount of money.
Meanwhile, someone doing their own taxes specifically to look for savings is in the opposite trap. He has a very good chance of making mistakes which will draw attention from the IRS. Not only will he lose out on that deduction, he’ll also lose a huge amount of money from an audit.
It all comes back to the example of shoes. Paying for proper help with taxes incurs a higher price at the very start. In the longer term view, it ends up saving people a great deal of money. Most people agree that making frugality a habit is a good idea. But it’s important to ensure that this frugality is based on long-term planning.