When we are young, I think there are lots of people and information tried to push the “concept of saving" into our mind. It is not surprise that when come to money, people always care how much money they can save and some people, I believe, how to save money is one of the important plans in their financial planning. However, sometimes if your mind only concentrate on how to save money, then you might end up losing money that you might not realize.
Today, I just want to share with you some of the “Myths" of Saving Money that we might not realize.
- I have a saving account, so I'm saving money!
Having a saving account and you are putting money inside does not means you are saving money. If you have credit card debts, which I think many people will have, the interest rate of these debts are ALWAYS greater than you saving interest.
- If I buy something on sale, I'm saving money!
If you buy something on sale, you are paying less compare to the full price without promotion. For example, you buy a laptop at $1000 and the normal price is $1200. So you only pay $200 less. You only considered as you are saving money if you take out the $1200, spend the $1000, and put the $200 aside without spending it in other place. Then you are saving $200!
- If I refinance my house at a lower rate, I"m saving money!
I bet the bank will get richer if more people think that refinance their mortgage or other loans at a lower rate will save them money. The point arises here is if you refinance your mortgage after paying 5 years of installments, you will loss you money because normally first few years you are paying for interest. So the more you refinance, you will loss more money.
- If I made more money, I can save more money!
Theoretically, this is correct. However, this only right if you don't increase your consumption after the raise. The truth is, however, that most people quickly increase their consumption after an increase in pay.
Do you agree with the saving myths above?
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I love myth 2: If I buy something on sale, I????m saving money!
In fact, a good friend of mine has a saying, “I saved so much money at the sale that I can retire”.
???? saved so much money at the sale that I can retire???? cool, shopping also can make us retire!
Great job on spreading the truth about saving money, baby! Saving the dough starts with the joe or jill in charge of it. When they decide to get on a budget and live on less than they make, THEN they are saving moolah! Here’s looking at you, kid … great job!
Good points, however myth #3 may at times reflect reality. Back around 2002 many people were refinancing from 8-10% loans to 5-6% and were able to save hundreds of dollars per month in payments. Granted, they reset the mortgage calculator to 30 years, but a disciplined investor could put the extra money to work and come out ahead.
The other issue is the transaction cost to refinance. Supposing one would save $200 per month, but the refinance costs $2500 in lender and lawyer fees, it would take about 13 months to break even. For most people this is probably a good deal if they stay put for a while.
I’ll second the warnings on #3. We went down from a 6.5% mortgage through a conventional bank to a 4.5% mortgage through a credit union. We had been paying extra on it in the 2.5 years since we got it, and we had a 15-year mortgage to start with.
Our credit is also stellar, so we paid very little to refinance and should break even in a few years.
Also consider that if a homeowner resets their mortgage clock (from 12 years back to 15), they can drop their payment and direct freed-up money into either paying down the other loans, or putting money into 401k or Roth IRA.
Of course, this also presumes that you didn’t buy too much house in the first place!
Very entertaining issue. I haven’t heard of this one. It will be necessary to visit you on a thicket! ???? saved so much money at the sale that I can retire???? cool, shopping also can make us retire! –this is not new to me