When to skimp (AND when to splurge)

by Kathy Kristof for CBS MoneyWatch.com

Note: This story is part of a bigger CBS MoneyWatch package on when to skimp and when to splurge. Click here to see other stories in the package.

The decision about whether to skimp or splurge on any given purchase is normally a personal one. Is the
designer bedspread worth the extra $300? The answer typically hinges on how much enjoyment the buyer derives from the purchase.

But in a handful of areas, the economic case is clear. Here are three times where the decision to skimp or splurge is made by the numbers.

Home: Skimp on size; splurge on location.

When Realtors advise about the three things you need to consider when buying a home, the classic response is: "Location; location; location."

Why? Schools, crime and traffic. Each of these could save or cost you a fortune over time.

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Start with schools. Let's say you have two toddlers and you figure that you'll send them to public schools if the school district is good, but are likely to send them through private schools otherwise. But the house in the good school district costs $100,000 more than the one where the schools aren't so hot. Is it worth it?

According to the Center for Education Reform, the average private school tuition is $6,733 through elementary and $10,549 for high school. If those two kids needed private education from kindergarten until college, it would cost you $205,586. (That's 18 years of grammar school tuition and 8 years of high school tuition for your two progeny.) You'd be $100,000 better off by buying the home in the better district - and that doesn't even account for the fact that the mortgage interest you pay is tax deductible, while the private school tuition is not.

Crime will cost you in higher insurance premiums for both homeowners and auto coverage. Your out-of-pocket cost for the deductible if you house is robbed or your car is stolen is extra. You also might decided to pay for house alarm systems, fencing and guard dogs in a dicey area. (Your insurer will boost your premium for the guard dog too, since they're more likely to bite someone and cause a liability claim.)

Why would traffic matter? It boosts the chance that you're going to get into a fender bender and that boosts your auto insurance premiums. Consider a 30-year-old male, with a pristine driving record, who attempts to insure his Honda Accord. According to the California Department of Insurance's rate comparison site, he could pay as little as $999 if he lives in relatively rural Santa Clarita, but he'd pay a minimum of $1,560 when living in the far more congested area of Van Nuys.

The size of your home, on the other hand, matters only to you. Indeed, many will argue that having the smallest house in the neighborhood is better for your resale value than owning the largest.

Food: Skimp on dining out; splurge on healthy choices.

It's no shock that getting a meal at a restaurant is more expensive than making one at home. That doesn't mean you can never go out. It just means that you should be judicious about how often you eat in a restaurant versus home and look for ways to get deals on dining out.

But the cost of food choices isn't just about food. A new movie called Food Inc. examines both where food comes from and the penny-wise, pound-foolish choices some families are making. Following a family of four, the filmmaker shows them turning away from buying broccoli and apples at the supermarket because they're "too expensive" compared to dollar-meals at McDonalds. The problem with that logic? This family is spending a fortune on medication to treat diabetes and other ailments caused by bad food choices.

Mark Wilson, a financial planner with The Tarbox Group in Newport Beach, says his family has saved a small fortune by following the guidance in a cookbook called Cook This, Not That, which compares both the cost and calories of various meals when made at home versus purchased in a restaurant.

"We didn't do this necessarily to save money, but it has saved us a lot," Wilson said. "Making dinner at home with your family is a really neat thing and we do a lot more of that now."

Fitness: Skimp on the gym membership; splurge on whatever gets you to exercise.

Meanwhile, Wilson says that his gym membership is a rip-off. Why? He doesn't go. He plays soccer; his wife walks. You don't have to pay a monthly fee to keep in shape. But staying in shape is likely to reduce both your out-of-pocket medical bills and your health insurance rates.

How much? Again, because insurance rates and medical bills hinge on so many factors, it's difficult to quantify. But, at least on the insurance side, the difference can be substanital, says Keith Mendonsa, consumer specialist at www.eHealthInsurance.com.

Insurance companies could increase the premium on your policy by 10-50%, depending upon your weight and their height/weight scale. For example, a 35 year-old male in Texas could receive a $2,500 deductible health plan for $130 a month. But if you add 50 lbs to his healthy weight, his quote would soar to about $195 per month. If you're overweight enough, you could have difficulty getting insurance at all, particularly if you have obesity-related conditions, such as high blood pressure, high cholesterol or diabetes, Mendonsa said. (Health reform will ensure that you can get a policy in the future, but it doesn't say that it will be cheap.)

If paying for a gym membership is likely to get you off the couch, search for bargains. Costco recently started offering a 3-year membership at 24 Hour Fitness clubs. At $450 for the three years, the price works out to about $12.50 per month. That's half the cost of 24-Hour Fitness' walk-in membership rates.

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