Money may be a taboo subject for some, especially when it comes to how you personally handle it. But because of the lack of information about proper money management, a lot of people fall into the trap of having more debt than what they can actually handle.
Lack of financial planning also leads to a person’s inability to save for the future, especially for emergency or unexpected expenses. Another thing that makes things even worse is the persistence of money-saving myths.
When you’re offered a “Buy one, get one free” deal, for example, are you really saving money? What if you don’t necessarily need the extra item? Or maybe the sticker price was merely marked up so that you’d think that you are getting the extra item for free – when in fact you are getting it at almost the same regular price.
In the end, we would all make bad financial decisions at one point or another especially when such tempting deals are offered by business owners. But if you know how to look behind the real value of the deal and you know the truth behind some of the most money-saving myths, you’ll have a better chance at successfully managing your finances.
The Truth Behind the Top Money-Saving Myths
A lot of myths abound when it comes to the issue of saving money or managing your finances. Some have surfaced just recently while others have been around since the generation of your grandparents’ parents. So what’s the real score behind these money-saving and money management myths? Take a quick look:
1. The more you spend, the more you save
Whenever you enter any kind of retail establishment, remember that the goal of the management is to entice you to spend as much as you can on purchases.
Let’s say that you are looking for a dress to wear to a cocktail party. There’s an on-going sale at your favorite store and on the entrance, it says “The more you spend, the more you save!” Which part of this message is a myth? Basically, the store owners will tempt you to buy more items than you intended because of the supposedly bigger discounts that they offer.
However, the reality is that you really will not end up saving anything if you are spending more than what you originally intended. If you entered a store with this sign on the door and you intended to buy just one cocktail dress – but you end up buying four dresses and a pair of shoes which are on sale, you’ll simply go home with a drained wallet which is not worth the savings at all.
What’s worse is when the charges end up being on your credit card, and you find yourself still paying for the purchases months later.
2. This [insert item name here] is a must-have!
Save for basics like food, shelter and clothing, there’s really no such thing as an item that you cannot live without. This is just a marketing ploy used by retailers to make you part with your hard-earned money. If you see an item in the stores which you personally consider as a must-have, ask yourself first if it falls under the category of want or need.
It most likely is a want instead of a need, which means that it’s a luxury that you can definitely live without. If this is the case, there’s the 30-day rule that you can follow. Once you see an item that you’d really love to buy, hold off on purchasing it and promise yourself that you would go back for it after 30 days. Once the waiting period is over, you can go back and buy the item if you still want it. By then, the urge to buy should have gone away and you’ll realize that you never really wanted it in the first place because there are more important things that you can use the money for.
3. If a website offers free shipping, I’m saving a lot of money
Financial experts say that retail websites entice you to spend a certain amount of money so that you can get free shipping. Doing this, you are not really saving money but spending more than what you actually intended. It’s probably fine to buy more in order to get free shipping if you really need the additional items.
If you’re doing your holiday shopping online, for instance, you can maximize the free shipping offer by meeting the minimum amount to qualify for such deals. But if you only need one or two items, you’ll probably end up saving more by simply paying for the shipping fee instead of meeting the required amount for free shipping.
4. My money can be safely hidden in a savings account
If you are exerting the extra effort in saving money, the biggest myth that you should not believe is that it can be safely stashed in a savings account at a bank. Sure, there is absolutely no risk in keeping your money there, but most banks only offer a 1% annual interest. Considering inflation, your savings will not be worth anything at all five or ten years from now.
If your goal in saving is to secure your future, most of your savings should go towards bonds, the money market or stocks. Depending on the amount of risk that you’re willing to take, you will have a much higher return of interest in these investment instruments.
5. When making a major purchase, I need to pay extra for that warranty
Buying a refrigerator, television set, an air conditioning unit or a washing machine would qualify you for extended warranties. If it’s just a small appliance like at TV, you are better off saying no to the extended warranty. Buying a new unit ends up being cheaper than paying for the extra warranty.
Of course, you still need to be a smart shopper and make a comparison of the brands and models available when buying a major appliance. This way, even without the extended warranty, you can rest assured that you can maximize the use of whichever item it is that you bought.
6. It’s okay to pay for a vacation after I get home
After working tirelessly for months or even years on end, you will feel as if you deserve a long, luxurious vacation in an exotic destination. You really should think about taking a break, but not go through a scenario where you are still paying for the trip two or three years down the line. You will appreciate every sip of that margarita on the beach more if you have no debts to worry about. As such, you should find ways to save on your vacation by saving up for it way ahead of time and making sure that you are taking steps to plan a more budget-friendly trip.
7. Buying in bulk is always better
Perhaps one of the most common money-saving myths out there is that it is always better to buy in bulk because it will save you more money. This is not always the case.
To determine if you are getting more bang from your buck, always compare the unit price of the bulk items with the per-piece price of the retail item. Which one will give you the best value for your money? It usually depends on how the bigger item is packaged.
If the manufacturer spent more on packaging a one-gallon product, for instance, its unit price might end up being more than when you’re buying smaller quantities in retail form.
8. I only need to pay the minimum amount on my credit card bills
Yet another money-saving myth that persists up to now is that you only need to pay the minimum amount on your credit card bills. By doing so, you are letting the interest accrue and you are not paying off the capital or the main amount that you owe.
A good rule of thumb to follow for you not to fall into credit card debts is to only charge what you can afford to pay. Credit cards are a good financial tool if you know how to use them wisely. Otherwise, it’s a debt trap that is just waiting to happen.
9. The cheaper the item, the more I will save
When you compare the prices of brands A and B, you will usually choose the cheaper brand. However, there are times when it pays to invest in a more expensive brand with better quality so that you would not need to replace it as often.
10. I need to diversify my investment portfolio
Finally, if you have investment instruments, you might have heard of the advice that you need to diversify your portfolio. This might have been true a few decades ago, but not anymore.
When you focus on just one kind of investment, you will master the ins and outs of the market and maximize your earnings there. Of course, it’s better to seek the help of a financial expert for this but if you do have the funds to spare on investment instruments, diversifying may not necessarily give you the earnings you want.
How about you, which among these money-saving myths do you still believe in?
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