Money Saving
CD Shopping

Don't be too cheap

(3/7/2011) There are many ways to save money, but some things we do to save a little money will end up costing us more in the long run.

For instance:

• Miserly maintenance. Don't scrimp on home maintenance. Painting, caulking, replacing furnace filters, chimney cleaning, roofs repairs, gutter cleaning, or filing the cracks in the driveway will cost us money if you overlook them.

• Senseless shopping. You don't have to buy stuff just because you have a coupon or there's a discounted sales price. Sure, smart shop by looking for bargains, but impulsive buying items you don't need because "it is a good deal" is shopping without justification.

• Eating equity. Don't use your home equity like an ATM machine. Equity is the difference between what our house is worth and what we owe on it. Don't borrow against your house to pay off unsecured debt, to buy jewelry, to go on vacation, to pay for a wedding, or just to have cash in your pocket. Don't justify this practice because the interest is lower or can be tax-deductible.

This practice is one of the main reasons why 14 percent of 64-year-olds are entering retirement with a negative net worth, according to the Institute of Consumer Financial Education (ICFE). It is also one of the main reasons that those who must sell a home, move, and buy a different house, have no money to put down on their new home. Eating up your home equity for things you want robs you of things you may later need.

• Ignoring insurance. Insurance of any kind is expensive today, but not as 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 send you to the bankruptcy court if you are not insured adequately.

• Raiding retirement early. Again, what is viewed as "a cheap way to go in getting what we want" can backfire on you. When you raid your retirement funds to pay off debt, the debt most often reappears after just 30 months. Raid retirement funds early with no repayment plan can also result in a 30 to 40 percent loss of the total withdrawn due to penalties and tax liabilities.

• Snubbing savings. Put the kibosh on statements like: "But I can't afford to save because the interest I make is less than the interest I owe!" Emergency savings isn't for investing, but for anticipating emergencies before they happen. The money you save by not having to go into debt to pay emergencies will far outweigh the fact that your savings interest is low.

ICFE says 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 three months income in your savings account, then build to six months, then a year. Not saving will end up costing you more.





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