We all like to think that we are doing the
best we can when it comes to our finances. We think we are saving money,
but we've never actually sat down and done the math. You could be
surprised if you did.Here are
the top five money saving myths that we fall for:
1. Savings accounts save us money
Having money in a savings account for
emergencies is a good idea. It's easy to get to, but not too easy. But
if you are looking to save money or make your money work for you, an
old-fashioned savings account isn't necessarily the best way to go.
First, you have to look at what you are paying out in interest rates.
For example, if you have a student loan with a 5% interest rate and a
savings account making 3% interest rate, your savings are costing you
approximately 2%. You would be better off paying off that student loan
with your savings account.
It goes the other way around too. If
your debt has less of an interest rate than your savings, your money is
working better in the savings. But with today's interest rates being so
low, your debt is probably higher than the amount of interest you are
earning on your savings account. That means you are actually losing
money.
2. Sales shopping saves money
I used to be a shopaholic, and sales
were my drug of choice. Let me tell you that you aren't always saving
money. Yes, if you really needed the item, then you are saving money.
But sales often lead to the purchase of items that normally wouldn't be
purchased. And you usually buy twice as much because it's on sale. So
you haven't saved any money.
Then if you never use the item, you've
actually wasted money. This can also apply to bargain shopping and
shopping in bulk. It doesn't matter if you bought your daughter 35 pairs
of shoes at garage sales for $1 each. If she only wore two pairs of
them, you just wasted $33.
3. Refinancing your home pays off
When you refinance your home, you
aren't necessarily saving that much money in the long run. Yes, your
monthly payments are smaller, but you have refinanced for another
30-year term. This means that if you have already paid 10 years of
mortgage, then refinance for another 30, you have basically extended
your loan to a 40-year mortgage. Sit and do the math and you'll see if
you are really saving anything.
If you really want to save money,
refinance for a lower rate and a shorter term. Your monthly payment may
not go down, but your overall repayment may.
4. Zero percent interest saves money
When you take out a card with a zero
percent repayment term, you aren't saving money. You are just delaying
paying for items. You don't save and you don't spend more. But if you
don't pay the money back within the zero percent period, you'll be
paying interest on those items. That costs you money.
5. Savings is dependent on income
No matter how much you make, you can
save money. You simply have to spend less than you make. If you make
more money and spend more money, you aren't saving anything. In fact,
you could even be spending more. Don't wait until you have more money to
start saving. You have to start now.
