The Top 5 Wrong Ways to Save Money | Molly’s Money

February 4, 2016·

If this is your first time here, Molly’s Money is a regular series I write on this blog that includes ALL things personal finance – debt management, budgeting, home buying, savings,investment, etc. I am NOT a financial advisor, but I am married to one! These are just things that I have learned over the years as I struggled with my own personal finances and ultimately, became debt free in 2012. Got a question about money that you want answered? Leave it in the comments below or email me!

Today’s post is one I’ve been thinking about for awhile because, well, it’s sort of related to a common question that I get ALL THE TIME from readers! So many readers will email me and ask something to the effect of, “What is the best way to save money?” Or “How should I use my savings?” Or “I want to save money, but don’t know the best way to go about it.”

And, as strange as this might sound, there really are WRONG ways to save money. So, today, I wanted to share with y’all FIVE ways that are the WRONG ways to save money. And these are in no particular order.

The Top 5 Wrong Ways to Save Money

1. Paying Minimum Payments on Debts

If you’re being charged interest on a loan, credit card, etc. etc. etc. and you’re only paying the minimum payment each month… TRUST ME, you are not “saving money.” Now, if you’re in major debt and you’re in over your head, that is one thing and you may need to think about tackling your debt a different way. Snowballing your debt, consolidating your debt, etc.

The point being, making minimum payments to save money is basically the savings equivalent to driving faster on a snowy road with the thought that the friction will melt the snow and keep you safe. If you’re thinking to yourself, “That doesn’t make sense,” …that’s because it doesn’t. So you shouldn’t make the minimum payments.

2. If You’re Young, Doing All Your Retirement Savings in a 401(K) and Nothing in a ROTH IRA

I’ve done a whole post on the importance of saving for retirement and even a whole post on savings. However, for many young people as you are entering the work world for the first time, many think that the company-offered 401(K) is the only retirement savings they should think about. WRONG!

A Roth IRA, if invested in sooner (especially in your 20s or 30s) can make a WORLD of difference at retirement age. Think MILLIONS vs. THOUSANDS of dollars in difference. I won’t go into all the specifics in this post (read my retirement post for some good info on this), but trust me… investing and saving in a Roth NOW can do A LOT for your savings down the road.

Molly's Money Series: Dealing with Debt3. Stopping Spending Altogether

I realize this seems like it might be counter-intuitive, but I have a point. Sometimes people think that the only way to save is to not spend money.

Meanwhile, if you had just been getting regular cleanings, you could have saved yourself a lot.

Or, maybe you think your car is okay and doesn’t need an oil change and that 50,000 or 100,000 mile check up… so you skip it. Well, 10K, 20K, or 30K miles down the road, you end up needed to replace the whole engine or something like that and it costs you thousands… but regular upkeep could have prevented that.

So, the key is to not spend money that is unnecessary, but not NOT spend money on the basic upkeep of life. If that makes sense.

4. Keeping All Your “Savings” In Savings

The old school way of thinking is that you have to put all your “savings” in, well, a savings account. Or even a CD (certificate of deposit). Those accounts are great for “liquid” savings (as in, emergency fund or monies that you’d want to be able to access quickly)… but the rate of return on those savings just isn’t good. Often it’s less than 3%.

It’s important to be thinking about strategic retirement savings (i.e. see point #2), and even other investments like mutual funds, etc. Obviously these are the types of things you want to think about once you’ve really gotten things in order, but the biggest thing is… DON’T put all your money in one basket.

5. Buying “Cheap” vs. Buying Quality

Another way people think they can and should save money is by cutting corners and “cheaping” their way out on things. “Whatever is cheapest!” There’s a difference between being frugal and being cheap. And, a lot of times, if you go the cheap route, you’ll find that you “get what you pay for” and you’ll end up having to replace that thing / fix that thing / etc. a whole lot sooner than if you had spent a little more money and invested in something quality.

For example, if you go the cheap route with food and only buy a bunch of processed, frozen, instant-meals over and over again and that’s all you eat… well, you’ll definitely be paying for it down the road when your health goes kaput.

Or, say you buy the cheapest set of tires for your car, well… you’ll likely end up needing to replace them a whole lot faster than if you’d gotten a better quality.

What about you? What do you think? Any that you agree or disagree with? What would you add to the list?