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We all like to think that we are doing the best we can when it comes to our finances. We think we’re saving money, but we’ve never really sat down and done the math. You might be surprised if you did.
Here are the top five money-saving myths we fall for:
1. Savings accounts save us money
It’s a good idea to keep money in a savings account for emergencies. Getting here is easy, but not that easy. But if you want to save money or want your money to 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 in interest rates. For example, if you have a student loan with a 5% interest rate and a savings account with a 3% interest rate, your savings are worth about 2%. It is better to pay off the student loan from your savings account.
It goes the other way too. If your loan has a lower interest rate than your savings, then your money is doing a better job in savings. But with today’s interest rates being so low, your debt probably exceeds the amount of interest earned on your savings account. This means that you are actually losing money.
2. Sale shopping saves money
I used to be a shopaholic, and sales were my drug of choice. Let me tell you that you are not always saving money. Yes, if you really need the item, you are saving money. But sales often lead to the purchase of items that would not normally 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 really wasted money. This can also apply to bargain shopping and buying in bulk. It doesn’t matter that you bought your daughter 35 pairs of shoes at a garage sale for $1 each. If she only wore two pairs of those, you wasted $33.
3. The Benefits of Refinancing Your Home
When you refinance your home, you are not necessarily saving that much money in the long run. Yes, your monthly payments are lower, but you refinanced for another 30-year term. This means that if you refinance to a 30-year mortgage you’ve already paid off for 10 years, you’ve essentially increased your debt to a 40-year mortgage. Sit down and do the math and you’ll see if you’re really saving anything.
If you really want to save money, refinance to a lower rate and shorter term. Your monthly payment might not go down, but your overall repayment might.
4. Zero percent interest saves money
When you take out a card with a zero percent repayment term, you’re not saving money. You are only delaying the payment of the items. You don’t save and you don’t overspend. But if you don’t pay back the money within the zero percent period, you’ll pay interest on those items. This costs you money.
5. Savings depend on income
No matter how much you earn, you can save money. You just have to spend less than you earn. If you make more money and spend more money, you’re not saving anything. In fact, you may even end up spending more. Don’t wait until you have more money to start saving. You have to start now.
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