Free is Often Too Expensive
Being Cheap Can Cost You Your Secure Retirement
Free is good, right? Most of the time it is. But if the free item or service doesn’t meet your needs or, worse, sends you in the wrong direction, then free becomes way too expensive.
The reality is that few products or services are entirely free. Companies should have a reasonable expectation of earning a fair profit because they can’t continue their existence by operating at a loss.
So when you’re offered something free, before accepting, determine if the free thing meets your needs, and also understand how the person or company will eventually earn a profit.
“There is no free lunch” contains much truth.
If you’ve ever been to a time share lunch you already understand that painful reality.
In order to earn your freebie you sacrifice hours of your vacation for an disturbingly hard sell. That price is simply too expensive for a few free tickets to a local attraction.
When it comes to managing your finances and preparing for a secure retirement, being cheap can cost you way more than you save.
Sometimes in our effort to save money we end up spending or losing more than if we’d made the proper investment up front.
For my aunt and uncle, their biggest ‘free’ mistake was seeking free investment advice by attending complimentary spaghetti dinners hosted by commission-based financial salespeople.
Given their experiences, you can’t blame them.
They planned and fully funded a perfect retirement and their early post retirement years were off to a great start.
But then they made a huge mistake.
They wandered well beyond their acceptable risk zone and a full service broker happily guided them down an ugly path.
While their financial history was focused on bank CDs and a few large cap mutual funds, their broker put them in options, narrowly focused sector funds, and other high risk investments they did not understand.
They were initially blinded by massive returns.
But then it all quickly fell apart. They lost 50% of their initial investment principal at the hand of the broker they’d earlier dubbed the ‘genius’.
Wiping out half of your liquid investible assets is certainly something you never want to experience in your post retirement years.
They became completely untethered and swore off all future risk. They swung from one extreme to the other. And either extremes are bad.
In response to their traumatic experience they sought advice from anyone who would offer it for free.
Friends, neighbors, and family. Conversations started like this: “So what are you in and how are you doing?”
They responded to every flyer or call for those awful free financial advice seminar dinners.
Had they been willing to invest a little with a fee-only financial planner, they may have been able to find a way back to a secure future.
Instead they ended up getting sold an awful trust and annuity package. A horrible example where being cheap can cost you big.
Trusts can be an excellent option for some retirees but it wasn’t for them. In this case the trust was used a wrapper for one of the worst annuities on the market. And the trust was worthless because they never moved their assets over.
When my aunt passed they were still 8 years away from even getting their original principal back, and there were no survivor benefits. The annuity company and the salesperson were the only ones who made out on this terrible financial instrument.
The dinner and the advice were free, but it cost them a bundle.
My aunt and uncle started their retirement the right way.
It was fully funded and backed by a highly detailed 80-page financial plan.
Their perfect retirement was destroyed by their massive asset loss.
Had they retained a fee-only financial planner and checked in with her or him at periodic intervals, they may have avoided their investment train wreck just on the merit of having another voice that would provide some accountability.
Having someone external to your retirement, with whom you check-in periodically, can often provide a safety margin just because you know you have to explain to them what you’ve done.
The accountability alone can be worth the cost of the fee.
Next, even once the disaster struck, if they’d immediately sought professional advice, they may have been able to rescue at least part of their assets instead of digging themselves even deeper.
Yes, free advice is sometimes just too expensive.
The cousin of free is cheap.
Negotiating a great price on a quality product or service isn’t being cheap, it’s being smart. Buying products or services that don’t meet your requirements just because the price is low IS being cheap, and it will cost you more than it will save in the long run.
Examples of cheap-being-costly include avoiding house maintenance to save a few dollars, only to experience massive damage when a roof or foundation fails.
Going too long on car maintenance and having your transmission or engine go out.
Or painting the exterior of your house with the economy paint and having to redo it in 5 years instead of 10.
Consider big expenditures like homes, cars, boats or pools as assets that need regular maintenance in order to provide you the years of service you deserve.
The right place to be cheap is to avoid living too large. Spend money only in the areas where the cash you part with gives you an equal or greater offsetting benefit.
Memberships you no longer use. Extended warranties on everything. Eating out too much just because you don’t feel like cooking. Buying more data or cable TV than you use.
All great examples where you should be cheap, as it helps you save dollars that will fuel your financial future.
But don’t jeopardize your secure retirement by going after free or cheap when the damage can be bigger than the savings. That’s when being cheap can cost you way too much and ‘saving’ a little is simply too expensive!
⇒Next: 2. Plan Departure Means No Plan