By now you’ve probably figured out that I’m completely in favor of 20somethings saving more money, (Compound interest anyone? Small amounts saved today -i.e. fewer meal at restaurants- turn into big amounts later on in life -i.e. more tropical vacations ). That said, there are good and bad ways of doing so. Here is my tribute to the 3 most common ways in which smart people do stupid things with the belief they are “saving” money……..
3. Ignoring Small Problems Until They’re Big Problems
- Health problems: While many health problems (an achy muscle, a weird pain) go away for free with some rest and relaxation, some pains (a painful tooth or an ignored cold that turns into a sinus infection) lead to larger expenditures down the line. You have to be the judge – if the potential cost (i.e. getting a tooth pulled) is much larger than the cost of catching it now (i.e. getting a check up), suck it up and fix it now.
- Financial problems: The same goes for financial problems. Cost of paying a financial consultant now to sit down with you and map out your financial future? Fairly small. Cost of 19% interest on $20,000 in credit card debt (not to mention the wear and tear of the anxiety that debt creates)? Huge. Same goes for taxes. As prices for tax prep services get more competitive, there is little reason not to take advantage of software of even a live professional to help you out if you’re tax clueless (for more information, check out my previous post “Beating the Tax Man in 4 Steps”). Doing your taxes right the 1st time is much, much cheaper than an audit.
2. Buying Things Because They’re Cheap or “On Sale”
- Extras of things you already own: You see your favorite (fill in item here – shirt, widget, pair of pants, electronic doohickey) on sale and you think “Well, I use the one I have all the time, couldn’t hurt to have another one. And it’s 50% off! What if mine breaks? What if the neighbor’s pet snake eats it?” and the item goes home with you. The problem is that the second of anything is rarely as exciting as the first, and by the time you break/lose/throw out an item there’s probably a newer, shinier version of it on the market you want instead. Resist buying things “just in case” and you’ll save yourself both time and money (remember that you’re paying not only the sticker price but also interest if you bought it on a credit card, the cost of a larger home or storage space to store extra items, and the lost opportunity cost of time spent cleaning your extra widgets that could be used traveling, hanging out with friends, or working).
- Food: Yes, Burger King Whoppers and Ramen noodles are cheap now, but they lower your productivity (ever tried to write a stellar paper after eating a package of Ho-Hos? Can anyone say “sugar crash”?) and can lead to more expensive health problems down the line (obesity, diabetes, high blood pressure to name a few). Full disclosure: I am the #1 culprit of this mistake (“but Beyond Beer Money, I’m skinny, I’m young, I exercise, I eat Ho-Hos and still write “A” papers”…) but even being the cookie monster that I am I’ve noticed a big difference after making simple changes. I’m not recommending you start buying everything from Whole Foods Market ($7 for strawberries? No thanks.) but shopping at cheap, healthy places like Trader Jo’s (my personal favorite) and making small substitutes (spinach leaves > iceberg lettuce, juice > soda, lean meats/fish like chicken and salmon > hamburgers) can make a huge difference. It’s hard to change the world while you’re pumped full of processed sugar.
And the #1 Way People Waste Money Believing They are “Saving” It?
1. Not Having Enough Health and/or Auto Insurance!
- Yes, paying lower premiums now feels great, and no, no one out there really needs all of the kinds of coverage insurance companies will try to sell you, but paying for a reasonable level of insurance now can help you avoid bankruptcy later. It can be confusing to figure out how much to get, but there are tons of good guides out there.
- For car insurance, check out Smart Money’s Guide to Auto Insurance which offers a full explanation in real English.
- For info on lower coverage health insurance plans for young people (such as temporary insurance and high deductible plans) I recommend starting here. Most companies offer some sort of health insurance option so go to HR and ask questions. You’d be surprised how much people miss out on great deals and benefits from the company they work for solely because they never asked.
If some readers feel they may notice a trend here, you’re right. Your health is your greatest asset. It allows you to work and to enjoy the fruits of your labor. When it’s in trouble, it can easily drain your assets dry. Protect it.
Other stupid money “savers” I’ve left out that you or “your friends” (i.e. you) commit?
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