Wednesday, July 18, 2012

6 Ways That Being Too Cheap Can Leave You Broke!

From the ICFE's Ask Mr. G's Library

There are many great ideas for saving money, but there are also some bad ones! Some things we do to save a little money will end up costing us a lot of money in the long-run. Consider 6 ways that being too cheap can leave you broke!

Miserly Maintenance. House and car maintenance are not areas in which we should focus on being "cheap." Maintenance for things on our home like painting, caulking, replacing furnace filters, chimney cleaning, roofs repairs, gutter cleaning, or filing the cracks in the driveway will cost us money. And car maintenance like oil changes, washes, waxes, and tire rotation all will cost money too. But spending for maintenance now usually avoids spending for major repairs later.

Senseless Shopping. Some people are quick to purchase anything for which they have a coupon or anything that is offered at a discounted sales price. To be sure, smart shopping encourages us to look for bargains. But buying things we do not need just because "it is a good deal" is senseless shopping and cannot be justified.

Eating Up Equity. Many Americans use their home's equity like an ATM machine! Equity is the difference between what our house is worth and what we owe on it. These people will borrow against their house to pay off unsecured debt, to buy jewelry, to go on vacation, to pay for a wedding, or as one ad puts it, "just to have extra cash in your pocket." Some want us to believe this practice is justified because the interest is lower and is usually tax-deductible.

But reality reveals that this practice is one of the main reasons why 14% of 64-year-olds are entering retirement with a negative net worth! They still owe on a first and second mortgage!

It is also one of the main reasons that those who must sell, move, and buy a different house, have no money to put down on their new home. Eating up their home's equity for things they want robs them of things they may later need!

Ignoring Insurance. Insurance of any kind is expensive today, but as not expensive as not having it. Home insurance, car insurance, life insurance, and health insurance are important enough to sacrifice in other areas to afford it. One accident, one major illness, one fire, or one death can literally send us to the bankruptcy court if we are not insured adequately.

Raiding Retirement. Again, what is viewed as "a cheap way to go in getting what we want" seems to backfire on us. When retirement is raided to pay off debt, the debt most often reappears after just 30 months, plus an early raiding of one's retirement with no repayment plan can result in a 30-40% loss of the total withdrawn due to penalties and tax liabilities.

Snubbing Savings. How often I have heard someone say, "But I can't afford to save because the interest I make is less than the interest I owe!" Listen to me, dear friend, emergency savings is not for the purpose of investing. It is for the purpose of anticipating emergencies before they happen! The money you save by not having to go into debt to pay for those emergencies will far outweigh the fact that your savings interest is low.

Start saving what you can, even if it is only $10 per paycheck. Have it automatically withdrawn so you don't see it. Shoot for the equivalence of 3 months income in your savings account, then build to 6 months, then a year. Not saving will end up costing you more.

So be careful where you focus your efforts on being "cheap." Some of those efforts, if misplaced, will not pay off for you. They will instead cost you more!

Source: Adapted from an article by Annie Mueller in Investope

© Jim Garnett

AskMrG Financial Library

2216 SW 35th Street

Ankeny, IA 50023

515-577-1799

askmrg@yahoo.com

AskMrG.com

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Posted by:

Paul Richard

President - Executive Director

Institute of Consumer Financial Education (ICFE)