Money saving myths that might be causing more harm than good

       

Sonia Rees

To pursue and attain financial freedom, it is important that the manner in which you think about money is realistic. Over the years, people have picked up on money saving habits that may actually be depleting their pockets in the long run, resulting in the need for payday loans. You might be wondering why you haven't met your short or long-term savings goals despite having a savings plan in place. This could be because your plan has been designed around a number of money saving myths that you have picked up over the years. The savings advice that once worked for your parents' or grandparents' generation may not hold true in today's world. Read on to discover saving myths that may actually be causing more harm than good and ask yourself the question: how many of these savings myths did you actually believe were true?

Myth 1: Buying instead of renting

Often times people are under the assumption that it is better to buy a home instead of renting one. This myth is quite common due to the popular belief that the natural progression of life is to find a job, get married and buy your own house. Whilst owning a home might be a good investment, it might not be suitable for everyone from both a financial and lifestyle stand point.

If you are young and have a variety of job prospects that may require you to move around the city or country, having a temporary base may be far better. Buying a home is only reasonable under such circumstances if you plan on renting it out as an additional source of income.


key unlocking mini house

Studies have shown that today's fast-rising home prices and higher mortgage rates have made it more economical to rent a home than to buy one. The monthly cost of living in a home that you own has increased by 14% over the past year, which is more than three times the annual increase in rent rates with rent having increased by just 4%.

A popular money-saving technique is to live at home with your parents. Alternatively finding room mates to share accommodation with is another popular cost saving option. Essentially, decreasing housing costs goes a long way to assist with one's financial health and thus decreases the need for frequent credit borrowing.

Myth 2: Only the rich can invest

Investing is not limited to the rich. Anyone, no matter income level, can earn a decent return by investing smartly. To invest smartly means to choose investment options that have short or long term growth potential (depending on your needs) whilst hedging your risks.

As an example, if you invest as little as £1,000 and earn 10% per annum, you will have:

  • £2,593 in 10 years
  • £6,727 in 20 years
  • £17,449 in 30 years
  • £45,259 in 40 years
  • £117,390 in 50 years

Obviously this is dependent on earning a steady 10% return, which is not as simple as it sounds.

The rich may have more to put aside for investments and are thus likely to get more back in return. However, investing should be viewed as a strategy to build long-term wealth. By investing even a minimal amount, you're setting yourself up for money that you would not otherwise have when you're older.



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Myth 3: "I earn too little to save"

Although sometimes the case, most people do earn enough to have some form of savings. The primary reason people often find it difficult to save is because they do not prioritise saving. They spend first and save later, having little to nothing left to go into their piggy banks. With that being said, the best savings strategy to implement is to set up a monthly direct deposit into your savings account so that a portion of your monthly income automatically gets apportioned off.

Myth 4: Placing your emergency funds in a savings account

Often times people believe that placing emergency funds in a savings account will result in the benefit of earning higher interest whilst still having access to those funds when necessary. However, although savings accounts attract a higher rate of interest, one needs to consider the cost of withdrawing these funds when necessary. For example, accounts that attract 1% annual interest may have a 3% charge for withdrawals within a specific period. It would therefore be cheaper to save these funds in an account that does not charge for withdrawals even though the interest gains might be less attractive. Savings accounts are designed to be less accessible to encourage one to achieve their savings goals, unlike current accounts.

Myth 5: Avoid debt at all costs

Everyone has heard, at some point in their lives, that debt is bad and should be avoided like a plague. Some have even been told that it always negatively impacts on their financial health, and that bank loans, payday loans, and online loans are the enemy. Whilst this might be true when one is irresponsibly borrowing, it is quite normal to have some form of debt. As long as one borrows responsibly and pays back on time, debt should not have a negative impact on one's finances. Responsible debt is often a successful way to put yourself on the path to building good credit as well as positive long-term financial habits.

Understanding how to utilise debt in a positive way can widen your knowledge and set you up for success when looking to take out mortgages, business loans, or other credit needs. That being said, you should always consider all aspects before you make a borrowing decision. If you aren't sure, seek the right financial advice so that you make the best possible decision.

Myth 6: It is always safe to invest in gold

When the economy takes a down-turn, people usually jump at the chance to buy gold because it is both a physical asset and a safe bet against inflation. What most people tend to forget is the unpredictable nature of gold. It is difficult to determine the value of gold because it is based on a variety of factors such as supply and demand, making the price of gold not as predictable as one might think.


Woman carrying shopping bags

Myth 7: Discount shopping is best

Impulse spending during sales can set you back miles when it comes to planning and achieving your financial goals. The desire to purchase goods during seasonal sales e.g. Black Friday, Cyber Monday and January sales can lead to unnecessary spending. Always question why you are making a purchase. Do you need the item i.e. is the spending justifiable, or are you just unnecessarily spending? To avoid temptation, try unsubscribing from promotional newsletters via mail and email, stop subscribing to shopping channels, and delete any shopping apps that you may have access to on your mobile phone.

People tend to pick the cheapest item in an attempt to save money. However, sometimes the cheaper item ends up costing you more especially if the quality is poor. Try and find the cheapest item that doesn't compromise on quality. You do not want to end up buying cheap items that do not last!

Carrying coupons and vouchers around is a good way to be thrifty. However, if you weren't planning on purchasing the item in the first place, then you might end up spending unnecessarily. Check your local magazines and newspapers to see if you can find coupons for items that you buy on a regular basis.

Purchasing in bulk can decrease the price per unit and help you save money in the long run. However, throwing away most of what you have bought due to expiration or just to the fact that there's no need for it anymore is a waste of money and can prove counterproductive when it comes to saving.

The lure of free shipping can make you feel as though you are saving by purchasing goods online. However, most online stores come with the caveat of a minimum spend to qualify for free shipping. Therefore, unless you have a need to spend above the minimum amount, buying online may prove more costly than going into store.

Myth 8: Cash is always better

A lot of people are under the impression that using a debit or credit card is a better option due to its convenience and accessibility. The truth is, however, that it can be harder to control your spending when you are using a card because of its convenient nature, allowing you to access your funds at any point. Although an inconvenience, by withdrawing cash, you are limited to the amount that you are able to spend. The hope being that once you have exhausted the cash in your pockets, you'll be discouraged from spending anymore.

However, a disadvantage of using cash is that you have no protection if your money gets stolen or misplaced. With credit or debit cards, you have purchase protection against theft and fraud, extended warranties and insurance. So if your card gets stolen or misplaced, you can always contact your bank to block your card and cancel any unrecognised transactions.

Conclusion

Without question, saving money is an important life habit to develop. Not only does it improve the quality of life, it also allows for security during times of financial emergency and can pave the way to a more comfortable future.

When setting out plans to achieve your financial goals, be cautious when deciding which advice to take on board, you may end up picking up habits that do not actually contribute to your savings in the long run! By having sufficient savings for a rainy day, you will be less likely to require a payday loan.