This week’s post is a little different. It is written by the very talented Valentina Wilson who runs www.bestdebtconsolidation.org
A lot of personal finance bloggers are great in their fields as they have usually come through some kind of financial debt and come out the other side having learned something. Read on below to see her amazing guide to how some money-saving myths could actually harm your finances.
Yes, you might be working hard and planning to save your hard-earned dollars for a better future! But in the due course, you may come across some prevalent myths about saving money! And if you start believing these myths buddy, you are hurting your financial life unknowingly!
So, the biggest challenge for you would be staying away from all these myths! And start saving money for a stable financial life ahead!
Here we have listed some of the common prevalent myths about saving money that can hurt your finances!
Let’s start busting those myths and working through these money-saving tips.
“If you would be wealthy, think of saving as well as getting”
– Benjamin Franklin
You Dont Need To Do Budgeting:
You might have come across some people saying that you don’t need a budget for your financial well being. But that’s a total misconception. I would say that a budget is a stepping stone to a financially secure life ahead.
When it comes to money-saving tips then a budget is always the first thing to do, how else do you know where to start.
You need to write down your monthly income along with your expenses. Then plan a budget to make a proper spending plan and stop overspending!
But do you know what the main thing is?
No matter what, you need to stick to your budget! During the initial days, it might be challenging for you to do that! But once you are obsessed with your budget, your finances will be under control.
Using Credit Cards Can Help You Save Money:
When it comes to money-saving tips I always find that Credit cards are the one thing that can make or break you.
Credit cards can entice you with a lot of cashback offers and reward points! Obviously, you can earn some cash-back or reward points by swiping your credit cards. But at the end of the day, you might be losing money!
Yes, you heard it right!
The reason being, while using credit cards, you are not aware of your financial limitations. You are just swiping your credit cards and paying your bills. But trust me, you may get a shock while going through your credit card statement. And if you don’t pay off your bill within the grace period, you will be charged a hefty interest.
So, why will you burn a hole in your pocket for some cash-back or reward points?
A study says that people tend to spend less when they carry cash. So, try to use cash as much as possible to stop overspending. And if you want to use a credit card (like for maintaining a good credit score), charge it for small amounts. And make sure to pay off your outstanding balance amount in full and within the grace period.
Going out without your credit card will is possibly one of the best money-saving tips I can give.
You Dont Need To Save For An Emergency Fund:
Well, an emergency fund is an integral step to lead a stable financial life ahead. You might be surprised to know that a study has revealed that around 60% of people in our country can’t handle an emergency expense of $1000!
Can you imagine?
Now, the people who can’t handle sudden expenses will most likely look for some fast cash loans. And ultimately, they will fall prey to the debt trap!
That’s why saving money for your emergency fund is very important. You know what? Life is uncertain and anything can happen at any moment like an emergency room visit, sudden car or home repair, etc.
Financial advisors often say that your emergency fund should cover your expenses of 3 to 4 months. I know, it will take some time to save such amount. But I would suggest you to start saving for your rainy-day fund at the earliest. Such that, you don’t need to rely on loans if any emergency occurs.
You Have To Pay Higher Taxes If You Get Married:
Hey buddy! Are you planning to get married? How about getting a marriage bonus?
Well, you can get a marriage bonus when you and your spouse have different incomes and file together.
Let’s say, you have an income of $42,000 a year and you get married to someone who earns $10,000 a year. Your combined income becomes $52,000. If you file separately, you need to pay a tax of around $9,240. And your spouse will have to pay a tax of around $1,200. Together, you and your spouse have to pay a tax of around $10,440. Whereas, if you and your spouse file jointly, you need to pay a tax of around $4,200!
That means a lower tax bill of a considerable amount. What more do you want? So, don’t think that you have to pay higher taxes once you get married. Rather, you can save money if you and your spouse file your taxes jointly after marriage.
“It’s Too Early To Start Saving For Retirement”
Have you started saving for your retirement? ( I hope you have)
You might be thinking that you are young and you don’t need to think about retirement at this age. But financial advisors say that you should start saving for your retirement right from the day you receive your first paycheck.
Yes, you heard it right!
The earlier you start saving, the more you can have in your retirement fund. Does your employer offer 401k?
If yes, you should grab this golden opportunity immediately! Many companies offer a 100% employer match for your contributions. But usually, the employer match is capped at a certain percentage (usually about 3% to 6%) of your pre-tax annual income. This will generally take into account any bonuses etc.
You have to take full advantage of the employer match to reap the benefits during your golden years! In 2019, you can contribute up to $19,000 annually to your 401k from your pre-tax annual paycheck.
But what if you don’t contribute enough to the employer match?
For a year, you might think that it’s not a big loss for you. But if you see from a larger perspective, you will be losing a substantial amount. Because you will miss the benefits of compound interest calculations, where you can earn interest on top of the interest you have already accrued.
So, work hard and start contributing to your 401k keeping the employer match in view. However, if your employer doesn’t offer 401k, start investing in an IRA account. This is one of the more important money-saving tips.
Rolling Over Your 401K Into An Ira Is A Good Option:
Are you planning to leave your current job? What I do believe is that you are not planning to cash out your 401k! But you know what? Rolling over your 401k is also not that good.
A “rollover” means moving your retirement funds from one plan to another. Let’s say you are switching a job and willing to transfer your 401k funds to your new employer or move into IRA.
What if you have taken out a loan from your retirement account?
In that case, you should know about the 60-day rule before you opt for rollover. You have to repay the loan within 60 days if you are leaving the job. If you can’t repay your loan, you need to pay taxes along with hefty penalties!
Besides, your employer will withhold 20% from your account to cover potential taxes and penalties if you take possession of funds (that is, you have kept the loan amount with you).
You have to repay the amount from your own to bring up your account to the previous level.
Let me explain to you with an example! Let’s say you are rolling over your 401k into an IRA by taking possession of funds. And you have:
Funds in your account = $30,000
Employer withhold (20%) = $6,000
Remaining funds in your account = $24,000
So, you need to pay $6,000 from your pocket to start your IRA.
Else, you can start your IRA with $24,000 only. But the withholding amount will be treated as an early withdrawal!
However, if you open a new account with $30,000, you might get back the withhold amount after filing income taxes!
Doing A Side Hustle While Studying Can Distract You:
You might think that doing a side hustle while studying can hamper your studies. But trust me, actually, it’s not like that. You can learn how to deal with different people at work. Besides, you will learn how to manage your classes and work efficiently. Eventually, you can improve your time management skills.
Once you have worked out how best to manage your time then you will find studying alongside a side hustle is easy as well as bringing you that extra income that students badly need.
By the way, have you taken out a student loan?
If yes, I hope that you don’t want this debt burden to hang around your shoulders upon graduation. One of the best strategies for paying off student loans is doing a side hustle while you are studying. You may enroll for the federal work-study program where universities provide part-time jobs to students who are in financial need!
So, as you can see that doing a side hustle can help you in many ways. And if you have taken out a student loan, doing a side hustle can help you to pay it off.
Buying Cheaper Is Better:
You might be buying stuff that fits into your budget. Well, that’s great. But if you go for lower prices over quality, you might end up spending more money over time. By looking at the price tags, you could miss out on items that are of better quality. And most likely, those items will last longer.
The old saying “You get what you pay for” certainly rings true.
So, you need to budget accordingly for the items which you know will last long. While buying any product, you need to do proper research and go through the reviews. For example, an insurance company can offer you a cover for a low-priced premium. But it might have some limitations which you need to check carefully.
This is a great example of how paying lower won’t always get you the quality you want.
That’s why you need to get over this idea that buying cheaper is always better. In certain cases, you need to prioritize quality over quantity.
So, what are you thinking? Bust the myths about saving money and use these money-saving tips to start saving as much as you can for your bright future ahead.