Do you recognize yourself in any of these 5 examples? If you do, you're missing out on opportunities to build wealth.
I once went on a date with a friend of a friend. Before appetizers, he asked what I did. I told him I was a personal finance writer, and he told me he didn’t believe in all that “hooey.” In fact — I kid you not — he said he kept his money hidden in his kitchen.
We didn’t have a second date.
When it comes to saving money, not every way is the right way. And keeping large amounts of cash stashed around your house isn’t the only wrong way to save. Here are a few other indicators you’re doing it wrong.
1. Being loyal
If you’ve had the same bank for years, you might be missing out on free money. Another bank may have higher interest rates on savings, lower fees or any number of bonus programs not offered by your current bank.
At least once every two years, compare the rates and deals at several banks to make sure you’re earning the most on your savings, or at least paying the least possible amount in fees. If you’re not, give your bank a chance to compete. If they’re not interested, switch. Check out our interest rate search to look for better rates.
And while you’re at it, make a day of it: Compare prices on auto insurance, cellphone plans, Internet service and anything else you’re paying for. If you’re not getting the best deal, switch or call your current provider and ask them to meet the rate. You might be pleasantly surprised.
2. Sticking with brick-and-mortar
If you’ve been wary of Internet-based banks, reconsider. Legitimate online banks are backed by the FDIC, so your money is safe, and since they have lower overhead, they often have higher interest rates than brick-and mortar banks. For example:
Current rate on brick-and-mortar savings accounts:
- Wells Fargo’s Way2Save account – 0.01 percent.
- Bank of America’s regular savings account – 0.01 percent.
- Chase Bank’s Chase Savings – 0.01 percent.
Current rate for online savings accounts:
- Capital One’s 360 Savings (Formerly ING Direct) – 0.75 percent.
- Ally Bank’s online savings account – 0.84 percent.
- Barclays’ Online Savings – 0.90 percent.
Moving your savings to an online bank is simple: In most cases you can link your new online account to your checking account for same-day transfers.
3. Not tracking your spending
The best financial move I’ve ever made was tracking my spending for a month. If you’d asked me before I kept track, I would have told you that I was the queen of frugality, saving money at every turn. But after 30 days of diligent tracking, I realized I wasted a lot of money.
If you’re not keeping track of your spending, start. Free services like those offered by our partner, PowerWallet, will do most of the work for you. You might be surprised about what you learn and how much you can put aside simply by seeing what you’re doing now.
4. Buying on sale because, well, it’s a sale
A lot of us are guilty of this: buying clothes, shoes, accessories or even groceries just because they were on sale. At best, you end up with some stuff you could use but didn’t really need in the first place. At worst, it ends up in the trash bin or donation pile.
Resist the urge to shop sales. Instead, decide what you really need, then wait for it to go on sale.
5. Saving solely for needs
A lot of financial advice suggests saving for needs – emergencies, college educations, or maybe a car. And while that’s obviously smart, experience has taught me that saving only for the things you have to buy kind of makes you hate the whole process.
Instead, set aside some of your savings for fun stuff – a dream vacation, a huge flat-screen TV, the new PlayStation 4 — whatever you find exciting. You earned your money, so you should get to spend (some of) it on what you want.
Do you have other examples of the wrong way to save? If so, share them on our Facebook page.