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When it comes to money, there are many myths out there that can cost you a lot of money if you fall into them. Most of them have a grain of truth to them, but have been simplified to such a degree that most people who follow the myth end up losing money in the process of trying to save money. Here are a few of the money myths that are associated with saving money and why they don't always work as intended:
<b>I have a savings account so I'm saving money</b>: While having money in a savings account means that you have some money that is quickly accessible in the case of an emergency, having money in a savings account doesn't necessarily mean that you're saving money. There are a couple of issues to consider. First, if you have debts such as credit cards or student loans, the interest rate is likely much higher than the rate you are receiving from your savings account. This in effect means that you are losing money. Secondly, with interest rates on savings currently so low, the inflation rate is likely higher than the amount of interest you are earning. That also means that the money in your savings account is losing money.
<b>If I buy something on sale, I'm saving money</b>: If you purchase something on sale, you are paying less than if you purchased the same item when it was not on sale. This does not automatically equate to saving money. In order for the savings to take place, the item that you purchased on sale must be something that you would have purchased at some point at full price. Then the savings from the sale purchase must not be spent on something else. Since this is rarely the case except for those who have a system set up where the savings from sale items goes into a specified savings account, in most cases purchasing something on sale doesn't equate to saving money.
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<b>If I refinance my house at a lower rate, I'm saving money</b>: When you refinance your house at a lower interest rate, you will likely pay smaller monthly payments, but this does not mean you will be saving money. The problem that arises here is that most people that refinance do so for a 30 year term again. That means that if you had previously paid 5 years toward your mortgage before the refinance, you have extended the previous 30 year loan to 35 years. Since the first years of the loan are when you are paying almost all interest, even with the lower interest rate and lower monthly payments, you'll likely pay more over the long term.
<b>If I have a 0% or a cash back credit card, I'm saving money</b>: If you have a credit card that has 0% interest you can be saving money if you already have the money to pay for the items purchased and are keeping that money in an interest bearing account. If you don't - and especially if you don't have the money to pay off the credit card when the 0% interest term is over - you're not saving money. You are merely delaying payment on the items.
If you have a credit card that gives cash back, you can be saving money if you pay off the balance each and every month and there is no yearly fee for the card. If you carry a balance, you lose any savings from the cash back to interest charges.
<b>If I made more money, it would be easy to save money</b>: Merely making more money than you currently do does not equate into more savings. If you make more money and you don't increase your consumption after the raise, then you have the opportunity to save money. The truth is, however, that most people quickly increase their consumption with an increase in pay, not their savings. To increase your savings, you need to have a money saving plan already in place before the next raise occurs.
It's important to know the details when taking action with your money since not doing so may leave you with much less money when you thought that you'd be saving it.
<b>I have a savings account so I'm saving money</b>: While having money in a savings account means that you have some money that is quickly accessible in the case of an emergency, having money in a savings account doesn't necessarily mean that you're saving money. There are a couple of issues to consider. First, if you have debts such as credit cards or student loans, the interest rate is likely much higher than the rate you are receiving from your savings account. This in effect means that you are losing money. Secondly, with interest rates on savings currently so low, the inflation rate is likely higher than the amount of interest you are earning. That also means that the money in your savings account is losing money.
<b>If I buy something on sale, I'm saving money</b>: If you purchase something on sale, you are paying less than if you purchased the same item when it was not on sale. This does not automatically equate to saving money. In order for the savings to take place, the item that you purchased on sale must be something that you would have purchased at some point at full price. Then the savings from the sale purchase must not be spent on something else. Since this is rarely the case except for those who have a system set up where the savings from sale items goes into a specified savings account, in most cases purchasing something on sale doesn't equate to saving money.
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<b>If I refinance my house at a lower rate, I'm saving money</b>: When you refinance your house at a lower interest rate, you will likely pay smaller monthly payments, but this does not mean you will be saving money. The problem that arises here is that most people that refinance do so for a 30 year term again. That means that if you had previously paid 5 years toward your mortgage before the refinance, you have extended the previous 30 year loan to 35 years. Since the first years of the loan are when you are paying almost all interest, even with the lower interest rate and lower monthly payments, you'll likely pay more over the long term.
<b>If I have a 0% or a cash back credit card, I'm saving money</b>: If you have a credit card that has 0% interest you can be saving money if you already have the money to pay for the items purchased and are keeping that money in an interest bearing account. If you don't - and especially if you don't have the money to pay off the credit card when the 0% interest term is over - you're not saving money. You are merely delaying payment on the items.
If you have a credit card that gives cash back, you can be saving money if you pay off the balance each and every month and there is no yearly fee for the card. If you carry a balance, you lose any savings from the cash back to interest charges.
<b>If I made more money, it would be easy to save money</b>: Merely making more money than you currently do does not equate into more savings. If you make more money and you don't increase your consumption after the raise, then you have the opportunity to save money. The truth is, however, that most people quickly increase their consumption with an increase in pay, not their savings. To increase your savings, you need to have a money saving plan already in place before the next raise occurs.
It's important to know the details when taking action with your money since not doing so may leave you with much less money when you thought that you'd be saving it.
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