Money. You need it to live, but whether you’re a spendthrift or a miser, money can make you do foolish things. You’ll waste it trying too hard to save, spend it on things you don’t need, and simply overpay on regular expenses every month. Here’s how to avoid being stupid with your hard-earned cash.
Stupid Thing #1: You Spend More by Trying Too Hard to Save
Frugality has its downfalls. When you try too hard to save, sometimes you end up wasting your money in the process. This may seem almost impossible, but it happens when you try so hard to cut costs that you stop paying for things you actually need. Doing this leads to more problems down the road – problems that are far more costly.
For example, skipping regular checkups at the doctor and the dentist can save you a few hundred dollars each year, but there will come a day when your lack of preventative care – which is very important – will earn you a much higher bill.
Doing your own taxes with inexpensive software may also seem like a good idea, but if the software makes any mistakes you could end up paying for them later. If you’re going to do your own taxes, make sure you have the time and resources necessary or you could run into problems.
Buying cheaply made products is another way to throw away your money. It may save you cash in the short term, but you’re bound to find yourself replacing it far sooner than a well-made product. If you’ve ever purchased a cheap inkjet printer, you know this works. It’ll print well for about six months to a year before you start to run into clogged ink heads and other issues. While the printer may be under warranty, manufacturers will often just replace them because it’s less expensive than the cost of repair. This is not only bad for the environment, but it can be bad for your wallet if you end up paying any of the costs yourself. It’s always better to look for a good deal on a well-made product than sacrifice quality manufacturing for the sake of a discount that will possibly cost you more in the long run.
Buying in bulk can also cost you more in the long run if you don’t use everything you buy. Bulk food can be great for multi-person households – especially those with children – but buying in bulk isn’t necessarily ideal for just one or sometimes even two people. Before you make your way to CostCo or Sam’s Club, ensure that you’re going to actually use everything you buy and that you’re actually getting a good deal – because sometimes you’re not.
Overall, if you think your purchasing decisions through before you make them you shouldn’t have too hard of a time realizing when your efforts to cut costs will actually hurt you in the long run. A little thought is enough to solve the problem.
Stupid Thing #2: You Don’t Put Money in Savings Because You Think You Can’t Afford It
When you aren’t bringing in as much as you’d like with each paycheck, it’s hard to reduce that amount by cutting out a chunk that’s just going to sit in a bank account and earn minimal interest. In some cases, you may think you can’t even afford to save. Neither option looks particularly attractive, but there are numerous benefits to saving even a small portion of your paycheck that you may not realize – benefits that save you even more money in the long run.
While this probably goes without saying, saving money means you have a reserve of cash at your disposal. It’s worth mentioning nonetheless because you may not realize that you can end up spending more money in the long run when you don’t save at all. This not happens because you can quickly rack up credit card debt by buying things you can’t afford, but because using your savings to purchase an item means you have the freedom to spend at the most optimal time – such as when a good deal comes along. If you don’t have the necessary savings when that deal arises, you’ll have to put it on a credit card that you can’t pay off immediately and the interest will quickly negate those savings. If you have cash at the ready, you won’t face this dilemma.
You can save money even if you don’t have a lot of cash reserves – just start small. If it hurts to take a chunk out of your paycheck each month, consider saving a dollar or two every day. Because you likely spend at least that much cash on a daily basis, funneling it into a jar won’t seem quite as difficult as watching about $30-60 disappear each month from your paycheck. Contributing in small amounts will grow your savings slowly, but as you get in the habit you may feel more comfortable increasing the amount. If you’re really having trouble finding the money to put in your savings account, consider where you can cut back and use the leftover cash to sock away each month. In the next section will discuss reducing your bills, which is an excellent way to find an explicit amount of extra cash each month, but you can also cut back in other ways if necessary. Cooking at home is one of the biggest savers. If you cut out prepared food and coffee runs on most days, you can save a lot. Buying generic – which sometimes gets you an identical product for less – is a great way to save money further. You can also save a lot by reducing your electricity usage, which can often be as simple as remembering to turn things off and using more efficient light bulbs. You’ll also want to consider what you actually have to buy and what you can reuse. Razor blades, for example, can be used for a couple of years with a simple sharpening technique. Consider what can be kept before you toss it in the garbage.
Contributing to your 401k is another great way to save, but many people avoid this because 1) retirement seems a long way off and 2) they want to build an emergency fund beforehand so they’re ready in case of a problem. There are two issues with avoiding a 401k. First, if your company matches any contribution you make you’re basically throwing away money by not taking advantage of that benefit. Second, your 401k can also serve as an emergency fund. In many cases – such the an inability to pay rent or a medical emergency – you can withdraw money from your 401k early with either a reduced tax penalty or none at all. You will be subject to the income tax, but you’d have paid that if you put it in a savings account anyhow. Not every 401k allows for hardship withdrawals, so be sure to check with your plan (or any plan you’re considering) beforehand. If you are covered, there’s really no excuse to contribute to your 401k right now.
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