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Top Five Saving Money Myths
We all like to think we’re doing the best we can when it comes to our finances. We think we’re saving money, but we’ve never 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
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’re looking to save money or grow your money, an old-fashioned savings account isn’t necessarily the best solution. First, you need to look at what you’re 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 cost you about 2%. You better pay off that student loan with your savings account.
It also works the other way around. If your debt has a lower interest rate than your savings, your money works better in savings. But with today’s interest rates so low, your debt is probably more than the amount of interest you earn on your savings account. This means that you are actually losing money.
2. Commercial purchases save money
I was a shopaholic and selling was my drug of choice. Let me tell you, you don’t always save money. Yes, if you really needed the item, you save 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 actually wasted money. This may also apply to bargain purchases and bulk purchases. 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, you just wasted $33.
3. Refinancing your home pays off
When you refinance your home, you don’t necessarily save that much money in the long run. Yes, your monthly payments are lower, but you have refinanced for another 30 years. This means that if you have already paid off 10 years of mortgage and then refinanced for another 30 years, you have essentially extended your loan to a 40 year mortgage. Sit down and do the math and see if you really save anything.
If you really want to save money, refinance at a lower rate and for a shorter term. Your monthly payment may not decrease, but your overall repayment may.
4. Zero Percent Interest Saves Money
When you sign up for a card with a zero percent repayment term, you don’t save 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 time limit, you’ll pay interest on those items. It 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 don’t save anything. In fact, you might even spend more. Don’t wait until you have more money to start saving. You must start now.
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