Trying to Build Your Savings?
Here’s What Not to Do
So you have a New Year's resolution—this is the year you're finally going to save for a rainy day and build up your nest egg. You've thought it out and identified some easy ways to cut back. But, not so fast.
Just because you save a little today doesn’t necessarily mean you’ll save in the long run. And, the whole point of saving money now is to build more security for later, right? If so, take these five ideas off your cost-cutting list for the year and focus on other ways to save.
- Not paying into a 401(k). The cash could come in handy now, so you’ll start your 401(k) next year. But, with that kind of thinking, you might keep putting it off for years to come. So, start now, especially if your employer offers a match – not taking advantage of an employer’s matching 401(k) contributions is like turning down a raise.
- Skimping on health care. Sure, you could save a few bucks by ignoring that nagging ache in your knee instead of having it checked out. But, what if it gets worse? The more an ailment or injury progresses, the more costly the treatment and the longer the recovery could be. You could even be out of work for a few weeks.
- Neglecting home and vehicle maintenance. Skipping oil changes for the car? You’re not doing your engine any favors. Neglecting to change furnace filters for the house? You may be increasing your energy costs. Ignoring common maintenance needs at home and for your car can also raise some serious – and costly – safety issues.
- Paying only the minimum on credit cards. It’s important, of course, to make the minimum payment on your credit cards each month. It'll keep your accounts in good standing. But, it won’t help you get out of debt. That’s because your entire payment is likely going toward interest, not toward your principal balance. To whittle down your balance, you need to pay more than the minimum each month. So, forgo those little luxuries you want and focus on what you need to do: Pay off your cards in full this year. It will be worth it when you gain the financial freedom of not having any credit card debt. And, once they’re paid off, keep them that way. Pay your cards in full each month.
- Reducing your insurance coverage. Finally, it can be easy to rationalize skimping on insurance coverage. You may be tempted to settle on the minimum your state requires for car insurance or to insure your home for less than what it would cost to rebuild. But, think carefully before you start chopping coverage, and be sure to consult with an independent insurance agent. The cost of a serious accident or a natural disaster could easily overwhelm minimal coverage, and you don't want to cut corners on your peace of mind.
Sure, any one of these tactics will put more cash in your hands right now. But, in the long run, they’ll likely only cost you more.
Don’t worry – you can still find plenty of other ways to save. Buy store-brand goods on your weekly shopping trip. Reduce your monthly entertainment costs. Or, choose a smaller rental car while on vacation. While you’re at it, pack some food for your trip, too. The savings will add up, and you won’t be putting yourself and your family at risk.