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Saving money is very wise. We spend a lot of our time and energy covering and discovering ways that you can save on every purchase, save for a rainy day and save for retirement.
So we appreciate that our readers are zealous about saving. But you should know that there are ways some seemingly money-saving efforts can backfire. Here are some common ones and ways to avoid them.
1. Socking away too much
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It’s easy to invest in your 401(k), and that’s generally a great idea, too. As we have often written, if your employer will match your contribution up to a certain level, you should try contribute at least to that level — or you’ll be leaving free money on the table. And if possible, you want to contribute at least up to the tax-deduction threshold. But in your enthusiasm, don’t leave yourself without enough cash to cover expenses. Once your money is in your 401(k) — or term CDs, an IRA or similar investments — you usually can’t get it out without paying a penalty. In the event of an emergency, if you’re cash-poor, it can mean covering the unpleasant surprise with a credit card, making a late payment or, worse, bouncing a check — and all of those are expensive ways to do business. So, be realistic about your budget, create an emergency fund that you can access without cost, and then make consistent contributions to your retirement fund and other longer-term investments.