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 fell for:
1. Savings accounts save us money
Having money in an emergency savings account is a good idea. It’s easy to find, but not too easy. But if you’re looking to save money or make your money work for you, a traditional 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 an interest rate of 5% and a savings account with an interest rate of 3%, your savings are costing you approximately 2%. It would be better to pay off that student loan with your savings account.
It goes the other way too. If your debt has a lower interest rate than your savings, your money is working better in savings. But with today’s interest rates so low, your debt is likely to be more than the amount of interest you earn on your savings account. That means you are actually losing money.
2. Shopping on sales saves money
I used to be a shopaholic, and sales was my drug of choice. Let me tell you, you are not 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 would not normally be purchased. And you usually buy double because it’s on sale. So you haven’t saved money.
So if you never use the item, you have actually wasted money. This may also apply to sale purchases and bulk purchases. It doesn’t matter if she bought her daughter 35 pairs of shoes at yard sales for $1 each. If she only wore two pairs, you wasted $33.
3. Refinancing your home is worth it
When you refinance your home, you’re not necessarily saving as much money in the long run. Yes, your monthly payments are lower, but you’ve refinanced for another 30-year term. This means that if you’ve already paid off 10 years of mortgage and then refinance another 30, you’ve basically extended your loan 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 at a lower rate and shorter term. Your monthly payment may not go down, but your overall payment will.
4. Zero percent interest saves money
When you take out a card with a zero percent payment term, you’re not saving money. You are only delaying payment for the 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 pay interest on those items. That costs you money.
5. Saving depends on income
No matter how much you earn, you can save money. You simply have to spend less than you earn. If you make more money and spend more money, you are not saving anything. In fact, you might even be spending more. Don’t wait until you have more money to start saving. You have to start now.
