While talking to a professional is best in order to understand exactly what your next savings step will be, you can start your stockpile by ignoring these popular pieces of money-saving. People love to offer advice on almost anything and saving money is no exception. Therefore, it doesn’t mean that you should consider every advice you hear. To help you discern between the countless money-saving tips out there, we’ve selected 10 that you definitely should ignore.
You need 80 percent of your pre-retirement income to sustain your present retirement lifestyle
Speak to your old man or grandma about planning for retirement and they’ll nag you to the ends of the Earth. But while these money-saving tips appear smart on the surface, John Deglow, CFP, AIF, at Unified Trust Company, says the reality is that many retirees live well below their means and this figure greatly overestimates the income they will actually need once they put it in their notice.
A couple might make $100,000 a year after taxes, for example, but once the kids have flown the had coop and the mortgage had also been paid off, they only spent $50,000 annually on expenses. Why would they need $80,000 to meet ends when they’re retired?
“A better assumption might be that you would need 80 percent of your current expenses—not income—during retirement,” he says.
Then again, make sure you book a one-on-one with a trusted financial advisor who can help you understand the effects of inflation and manage certain problems that are special to your case, he added.
Make a pro/con list of major expenditures
You shouldn’t have any reservations when it comes to signing on a dotted line, says David Rosen, a licensed real estate broker. “Often, people advise making a list of pro’s and con’s to decide which home to purchase,” he says. “However, if you feel uneasy about an investment or a savings platform, then you are right.
Just don’t do it. That list is there to trick your intuition, but your intuition is keenly aware of what’s likely to be a poor investment.”
You should make a home mortgage prepayment or make additional payments
Debt will probably always have a negative connotation, but Jeffrey Sklar, Sklar’s managing partner, Heyman, Hirshfield & Kantor LLP, says prepaid and additional mortgage payments aren’t smart money-saving tips. You could put your cash to better use and make more money for yourself.
“Most folks don’t analyze if there is tax benefit to the interest deduction, as well as an opportunity cost in taking the funds from a potential investment with a better rate of return,” he explains.
Skip your latte
If your obsession with Starbucks is almost as dedicated as your marriage when you talk about your regular visit your friends may raise an eyebrow. It’s pricy, of course, but financial expert E. Matthew Buckley says that sacrificing your latte in the morning will not make a huge difference in your savings picture, but it will affect your level of happiness and focus.
Life is too short to skip the things you enjoy. This type of money-saving tip is very tactical and amounts to nothing more than running around in front of a steamroller to pick up dimes,” he shares. Instead, speak to a professional who will help you build a savings strategy that leaves room for your caffeine addiction.
Over withhold on taxes from your wages to ensure a tax refund
Depending on your tax bracket and incoming earnings, your April tax refund can sound like the only way to save money. But this is a risky way to save because, according to Sklar, it does not directly benefit you in the way the dollars could if you invested them.
“Every taxpayer is better off investing their funds than providing the government an interest-free loan in the form of overpaying their taxes. It’s much better to have the extra money go directly into an investment each pay period.”
You need life insurance equal to seven times your annual salary
According to Deglow, this statement is inaccurate. Above all, he notices that not everyone needs life insurance. “If there isn’t anyone who would become financially compromised should you pass prematurely and you have enough assets to pay off your liabilities, life insurance may not be a necessity,” he explains.
If you do have a spouse and/or children, however, you may need to crunch the numbers to better understand how much you set aside. As an example, Deglow explains that someone who brings in $100 K a year and chooses a life insurance benefit of $700 K might be shortchanging their family.
“Withdrawing 4 percent of $700,000 would provide only $28,000 annually for your family. A more aggressive withdrawal rate of 6 percent provides $42,000, again much less than the family was accustomed to,” he shares.
He states that this doesn’t address other liabilities, such as mortgages, credit cards, student loans, and more, to make it more complicated. He advises that your life insurance should be as much as 20 times more than your income.
You don’t even need an estate plan unless you’re elderly or extremely wealthy
If your mind hasn’t been crossed by the idea of an estate plan, find this your not-so-gentle nudge to do so. While Deglow recognizes that addressing this topic might not be so fun, the reality is that no one knows when their last day will be, and it’s important to prepare for what’s going to happen to your assets.
“Regardless of income or wealth, families should plan for guardianship of their children, list beneficiaries, and create other documents addressing Powers of Attorney, naming an Executor, and establishing a living will. Essentially, everyone should leave instructions for what they want to happen, so that those decisions don’t fall on family members who are likely already going through a difficult time,” he says. “If you pass without an estate plan, your state has a default plan for you, which may or may not follow your wishes.”
Be a bad tipper
Less practical and more karmic, Rosen claims being a tipping Grinch isn’t a way to save more money. “The opportunity costs of being known as ‘cheap’ as opposed to ‘generous’ are great! However, the amount of money you save by skimming a few bucks here and there are not life-changing,” he shares.