Budget advice is plentiful. After all, who wouldn’t want to keep more money in their pocket? However, save in the wrong place and you might find yourself paying more in the end. Read on for 5 common budgeting mistakes and ways to avoid them.
Oh, the lure of keeping as much money as you can! We have all heard its siren call. However, not all budget advice is created equal. As a financial planner, I can tell you that some money-saving advice can cost you way more in the long run. Here are 5 examples that I see most often.
#1: Cutting down on your insurance (without a strategic analysis)
Skimping on your insurance has the huge appeal of instant and significant money savings. Who wouldn’t want to put hundreds if not thousands of dollars back into their pocket? However, slashing down your insurance policies indiscriminately can be expensive in the long run. Going without a health insurance policy leaves you exposed to exorbitant medical bills in the event of an accident. Skipping homeowners’ insurance can devastate your net worth if a fire destroys your house.
Still thinking about saving money on insurance? Then be smart about it. Look into bundles, consider carefully how much coverage you need and research alternatives to traditional healthcare coverage.
#2: Skipping doctor visits
The less you visit the doctor, the more money you don’t pay in office visit co-pays and lab fees, right? Besides, as we get older those visits tend to involve more poking and probing (colonoscopy, anyone?) so the temptation is high to push it off. Unfortunately, avoiding office visits can result in higher bills down the line. Preventive care is critical to maintaining good health and minimizing your medical costs in the long run. Seven out of 10 Americans die from chronic diseases that can be prevented and managed if caught early enough. So pick up the phone and make that appointment for the annual well-check, dental visit and eye exam.
#3: Not contributing to your retirement savings
Less 401(k) contributions might mean a bigger paycheck, but should you skip your retirement savings planning altogether? Definitely not. Remember that forgoing a $1,000 contribution to a 401(k) only results in you taking home an extra $700 (assuming a tax rate of 30%). Add in the lost opportunity of employer matching, and the decision to skip the contribution begins to look even worse. If your employer’s 401(k) plan leaves much to be desired because of high fees or poor investment choices, consider supplementing or replacing it with another investment vehicle – but don’t neglect retirement savings altogether.
#4: Signing up for services to get the promo rate
From cable to phone bills, service providers get creative about luring potential customers in with the shiny low promotional rates. Alas, those don’t last. Companies hope that most customers won’t bother to switch the service provider after the low rate runs out.
My advice? Be certain you need the service in the first place. If you do sign up for a promo rate, put the expiration date on your calendar so that you can either cancel the service or negotiate to keep the lower promotional rate going forward.
#5: Skimping on groceries
If you have ever cleaned out your fridge, you are no stranger to grocery shopping regrets. I cannot be the only person who keeps buying kale just to watch it wilt away, right?
Tempting as it might be to simply cut your grocery budget, remember that it may not be the right approach. If all you do is slash the money you spend at the store, you risk buying lower-end products that you won’t actually use. That can lead to splurges on eating out and costs you more in the end. Instead, analyze what you like and use (and what you tend to throw out). Then, adjust your behavior accordingly. Some people find that a weekly eating plan can help them focus their shopping and minimize food waste.
Bad money-saving advice and ways to avoid it
These are just 5 bits of advice that people can follow to their financial detriment. It is certainly helpful to understand common pitfalls, but you must also take the time to understand your own patterns. What money decisions do you tend to make when you are stressed out or tired? What areas of your financial life could use a bit more education and focus? Observe yourself, learn more about healthy money habits, and work with a financial planner who can help you make sense of your situation. Being smart about money does not happen overnight, but it is worth the time and the energy you invest.
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