From the ICFE's Ask Mr. G's Library
There are many great ideas for saving money, but
there are also some bad ones! Some things we do to save a little
money will end up costing us a lot of money in the long-run. Consider
6 ways that being too cheap can leave you broke!
- Miserly Maintenance. House and car maintenance
are not areas in which we should focus on being "cheap." Maintenance
for things on our home like painting, caulking, replacing furnace
filters, chimney cleaning, roofs repairs, gutter cleaning, or
filing the cracks in the driveway will cost us money. And car
maintenance like oil changes, washes, waxes, and tire rotation
all will cost money too. But spending for maintenance now usually
avoids spending for major repairs later.
- Senseless Shopping. Some people are quick
to purchase anything for which they have a coupon or anything
that is offered at a discounted sales price. To be sure, smart
shopping encourages us to look for bargains. But buying things
we do not need just because "it is a good deal" is senseless
shopping and cannot be justified.
- Eating Up Equity. Many Americans use their
home's equity like an ATM machine! Equity is the difference
between what our house is worth and what we owe on it. These
people will borrow against their house to pay off unsecured
debt, to buy jewelry, to go on vacation, to pay for a wedding,
or as one ad puts it, "just to have extra cash in your pocket."
Some want us to believe this practice is justified because the
interest is lower and is usually tax-deductible.
But reality reveals that this practice is one of the main reasons
why 14% of 64-year-olds are entering retirement with a negative
net worth! They still owe on a first and second mortgage! It
is also one of the main reasons that those who must sell, move,
and buy a different house, have no money to put down on their
new home. Eating up their home's equity for things they want
robs them of things they may later need!
- Ignoring Insurance. Insurance of any kind
is expensive today, but as not expensive as not having it. Home
insurance, car insurance, life insurance, and health insurance
are important enough to sacrifice in other areas to afford it.
One accident, one major illness, one fire, or one death can
literally send us to the bankruptcy court if we are not insured
- Raiding Retirement. Again, what is viewed
as "a cheap way to go in getting what we want" seems to backfire
on us. When retirement is raided to pay off debt, the debt most
often reappears after just 30 months, plus an early raiding
of one's retirement with no repayment plan can result in a 30-40%
loss of the total withdrawn due to penalties and tax liabilities.
- Snubbing Savings. How often I have heard
someone say, "But I can't afford to save because the interest
I make is less than the interest I owe!" Listen to me, dear
friend, emergency savings is not for the purpose of investing.
It is for the purpose of anticipating emergencies before they
happen! The money you save by not having to go into debt to
pay for those emergencies will far outweigh the fact that your
savings interest is low.
Start saving what you can, even if it is only
$10 per paycheck. Have it automatically withdrawn so you don't see
it. Shoot for the equivalence of 3 months income in your savings
account, then build to 6 months, then a year. Not saving will end
up costing you more.
So be careful where you focus your efforts on
being "cheap." Some of those efforts, if misplaced, will not pay
off for you. They will instead cost you more!
Source: Adapted from an article by Annie Mueller
Copyright Jim Garnett
AskMrG Financial Library
2216 SW 35th Street
Ankeny, IA 50023
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About the ICFE:
The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation). The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely.
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.
The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org). CASDRAP disbanded in 2010, shortly after the web site project was completed. In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.
The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.
Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org. Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G, a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.