Many of us work hard to keep our expenses to a minimum. The problem comes when we focus too closely on one type of cost, such as taxes, without considering the big picture.
The Blunt Bean Counter has some great examples of people making big mistakes when trying to reduce their taxes. In one case, an investor managed to avoid probate costs only to get hit with capital gains taxes which were 15 times bigger.
Another example comes from our obsession with gasoline prices. It’s a good idea to look for lower gas prices, but some people take this too far. Saving 4 cents per litre on a 50-litre fill-up saves only $2. If you have to drive across town for the lower price and burn 2 litres of gas, you’re actually behind even before valuing your time and wear and tear on your car.
Saving money often becomes an emotional goal rather than a rational goal. If you’re satisfying your emotional need for certain types of savings but are actually losing money in the big-picture view, your finances may be headed south.