10 Money-Saving Tips You Should Definitely Ignore
Though it's best to chat with a professional to understand exactly what your next savings move should be, you can start your stockpile by ignoring these common pieces of money-saving advice.
To save or not to save?
People love giving advice on absolutely anything, and money saving is no exception. However, that doesn’t mean you should believe in every advice you hear. To help you discern between the countless money-saving tips out there, we picked out 10 that you should definitely ignore. Did you know that by following the right advice you could save up to $1K a month?
You need 80 percent of your pre-retirement income to maintain your current lifestyle during retirement
Talk to your old man or your grandma and they’ll nag you to the ends of the Earth about preparing for retirement. But while these money-saving tips seem smart on the surface, John Deglow, CFP, AIF, at Unified Trust Company, says the reality is many retirees live well below their means and this figure greatly overestimates the income they’ll actually need once they put in their notice.
As an example, a couple might make $100,000 a year after taxes, but once the kids have flown the coop and the mortgage has been paid off, they actually spend $50,000 annually on expenses. So why would they suddenly need $80,000 to make ends meet when they’re job-less? “A better assumption might be that you would need 80 percent of your current expenses—not income—during retirement,” he says. Even so, make sure to book a one-on-one with a trusted financial professional who can help you better understand the effects of inflation and accommodate other issues unique to your situation, he adds. Here are 12 more common money mistakes people make in early retirement.
Make a pro/con list of major expenditures
When it comes to signing on a dotted line, you shouldn’t have any doubts, says David Rosen, licensed associate real estate broker. “Often, people advise making a list of pro’s and con’s to decide which home to purchase,” he says. “However, if you feel uneasy about an investment or a savings platform, then you are right. Just don’t do it. That list is there to trick your intuition, but your intuition is keenly aware of what’s likely to be a poor investment.” Want to buy a home? Follow this 10-step plan to buying your first house in five years.
You should prepay or make additional payments on a home mortgage
Debt might always have a negative connotation, but Jeffrey Sklar, managing partner of Sklar, Heyman, Hirshfield & Kantor LLP, says pre-paying and making additional mortgage payments aren’t smart money-saving tips. How come? Your cash could be put to better use and make you more money. “Most folks don’t analyze if there is tax benefit to the interest deduction, as well as opportunity cost in taking the funds from a potential investment with a better rate of return,” he explains. Check out how you can bump your savings up by $2K.
Skip your latte
If your addiction to Starbucks is nearly as committed as your marriage, your friends might raise an eyebrow when you talk about your daily visit. Sure, it’s pricey, but financial expert E. Matthew Buckley says skipping your morning latte fix won’t make a huge difference in your savings picture, though it will impact your level of happiness and concentration. “Life is too short to skip the things you enjoy. This type of money-saving tip is very tactical and amounts to nothing more than running around in front of a steamroller to pick up dimes,” he shares. Instead, talk with a professional who can help you come up with a savings plan that leaves room for your caffeine fix. You should also steal these secrets from people who are natural-born savers.
Save 10 percent of your income for retirement
We hate to break it to you, but for most, this figure is far too low, according to Deglow. How come? Between modest incomes at first jobs and student loan payments, most people aren’t able to save 10 percent of their income until they’re further along in their career. And once they reach the point where they’re able to tuck away cash, it could be too late to only set aside 10 percent. To determine the smartest percentage for your lifestyle, chat with a professional who can map out a detailed plan with money-saving tips to prep you—and your bank account—for your golden years. If you’re looking to pad your wallet for the future, learn these stock market tricks.
Over withhold on taxes from your wages to ensure a tax refund
Depending on your tax bracket and incoming earning, your tax refund in April might feel like the only way you can save money. But this is a dangerous way to save, since it doesn’t directly benefit you in the way the dollars could if you invested them instead, Sklar says. As he explains, “Every taxpayer is better off investing their funds than providing the government an interest-free loan in the form of overpaying their taxes. It’s much better to have the extra money go directly into an investment each pay period.”
You need life insurance equal to seven times your annual salary
There’s a lot wrong with this statement, according to Deglow. First and foremost, he notes, not everyone needs life insurance. “If there isn’t anyone who would become financially compromised should you pass prematurely and you have enough assets to pay off your liabilities, life insurance may not be a necessity,” he explains. However, if you do have a spouse and/or children, you need to crunch the numbers to fully understand how much you’re setting aside. As an example, Deglow explains someone who brings in $100K a year and opts for a $700K life insurance benefit, might be shortchanging their family. “Withdrawing 4 percent of $700,000 would provide only $28,000 annually for your family. A more aggressive withdrawal rate of 6 percent provides $42,000, again much less than the family was accustomed to,” he shares. And to make it more complicated, he notes this doesn’t address other liabilities, such as mortgages, credit cards, student loans, and more. His advice? Your life insurance should be as much as 20 times more than your income. If that number seems daunting, you need these 56 almost effortless tips to save more money every day.
You really don’t need an estate plan unless you are elderly or particularly wealthy
If the thought of an estate plan hasn’t crossed your mind, consider this your not-so-gentle nudge to do so. While Deglow acknowledges it might not be a super-happy topic to address, the truth is no one know when his or her last day will be, and it’s important to plan for what will happen to your assets. And even if those earnings or ownerships are minimal? It’s still your responsibility. “Regardless of income or wealth, families should plan for guardianship of their children, list beneficiaries, and create other documents addressing Powers of Attorney, naming an Executor, and establishing a living will. Essentially, everyone should leave instructions for what they want to happen, so that those decisions don’t fall on family members who are likely already going through a difficult time,” he says. “If you pass without an estate plan, your state has a default plan for you, which may or may not follow your wishes.” Here’s what you should do if you want to retire early.
Be a bad tipper
Less practical and more karmic, Rosen says being a Grinch with tipping isn’t a way to get ahead on your savings goals. “The opportunity costs of being known as ‘cheap’ as opposed to ‘generous’ are great! However, the amount of money you save by skimming a few bucks here and there are not life-changing,” he shares. Don’t miss these creative ways to save money you never thought of before.
Prepay your taxes
Much like your mortgage, if you use your extra cash to prepay your taxes, Rosen says there are better uses for the extra dollars. While some do this in an effort to avoid paying them late—which carries a steep penalty—he notes a better money-saving tip is to place the funds in a low-risk cash flow investment. “You will come out ahead, and it’s probably a better investment. The government is going to stay in business with you paying on time, there is no benefit to you to pay them in advance,” he explains. Next, check out these money-saving ideas that will save you hundreds each month.