The Folly of Frugality: Eight Ways Being Frugal Can Backfire on You

Are you financially better off today than you were a year ago?

The answer, of course, will vary from person to person, but for many Canadians it's a yes. According to a report compiled by Fusion Retail Analytics on behalf of Walmart Canada the average Canadian family had $82 more per month in spending power in July 2012 vs. July 2011.

Not convinced that this is a sign of a more optimistic future for the Canadian economy? Canada's second quarter GDP numbers exceeded the expectations of economists, however, it was far from being a slam dunk. CIBC World Markets economist Emmanuella Enenajor told CBC News that the numbers suggest the economy is doing okay. But don't start to grease your credit cards just yet -- even if you are managing to make your minimum payments. GDP has risen from 0.5% in the second quarter to 1.8%, so this means the economy remains steady.

If you've been guarding your spending over the past few years because of a fear that you'll wind up dirt poor, maybe it's your mindset that has you perpetually living from pay cheque to pay cheque. Indeed, sometimes being frugal is just counter-productive.

Here are eight ways being frugal can backfire on you.

Frugal Habits That Aren't Worth It

1. The pitfalls of extreme couponing
The past four years have been tough on many families, and for some, they wouldn't have been able to put food on the table if it weren't for coupons. When used in moderation coupons are an excellent way to economize. However, if you get caught up in hours and hours of clipping coupons, stock piling food and household product the obsession of extreme couponing can quickly become a time and space marauder.

2. Not using price comparison as leverage
Everybody loves a bargain, but at what cost? If you spend your time driving around from store to store in search the best deals in town, the deal you were chasing really won't be a deal once you've added up the time and money spent on gas in pursing it. That's why it's much smarter to take advantage of ad matching or price matching programs available at retailers like Walmart and London Drugs. Shopping under one roof is much more economical in the long run.

3. Short term thinking
When you're living from paycheque to paycheque is easy not to think about the long term. After all, you're just trying to make it through to the end of the day. So when it comes to day-to-day shopping chances are you'll buy exactly what you need, and that's it. So if there's a sale on something that will give you a little more product for your money, you'll turn a blind eye and miss out on a good long-term deal.

4. Blowing windfalls
If you were fortunate enough to get a sizeable tax return or inheritance it doesn't mean you have to spend it all right now. If you're not used to having emergency funds when a windfall cheque comes your way it may be tempting to spend the cash before it disappears. Hmm... isn't that why most lottery winners go broke within a year or two? If it's not second nature yet, get into the habit of saving money to cover rent, mortgage and utilities for six months or at least a couple of months.

5. Not taking advantage of sales
Why pay full price when you don't have to? Missing out on Daily Deals found on sites like this one is a poor way to manage your finances. If you think that waiting until you absolutely need something is the best time to buy -- think again. Ideally you should be stocking up on items when they go on sale. So read those supermarket circulars and visit sites that compile local sales.

6. Buying in bulk
While it's a good idea to stock up on sale items, don't get carried away.
Only buy items that you know you will consume, especially if those items have expiration dates.

7. Going overboard with your spending
If you've gone without money for most of your life or even several years, when things improve financially you may want to overcompensate for those dark days by going overboard on a shopping spree. This is dangerous because conspicuous and over consumption can quickly land you back in the poorhouse.