Personal finance tips are just like personal fitness tips. There are many great tips out there. Unfortunately, many DUMB money management and personal fitness tips get carried out and treated as fact over the years. Writing about personal finance has put me in a position where my ears are always open for money-related topics. The last few weeks I’ve heard some horrible money “saving” (not even sure what word to use) strategies. I wanted to point out a few dumb money saving tips and explain why they don’t work:
Buying a home just for tax breaks.
If you’re in the market for a new home, then the various available tax breaks should be just an added bonus. Even perhaps an incentive to make up your mind when being indecisive about the timing when the timing involved is only a few months orso. However, tax breaks should not be the sole reason for why you buy a home. Tax breaks should be the smallest consideration. Investing a heavy amount of your savings, along with tying yourself up with a huge mortgage– all for a few tax breaks is simply just a dumb money management strategy.
Financing a car to build credit.
A friend of mine recently purchased a brand new car with very little money down. His theory is that he’ll make his monthly payments on time and build his credit along the way. There are many complex strategies that the supposedly financial savvy individuals have concocted here. Unfortunately, financing a new car when you have no money as a means to build your credit is simply just a justification of your purchase. Us young people love our cars. We love to upgrade them and modify them as we go along. That’s cool. But buying a car that you can’t afford and thinking that it will build your credit is a horrible idea.
Saving money by not investing in yourself.
A friend recently proclaimed to me how he just saved thousands of dollars. I was ecstatic to hear how he did this. He then informed me that he decided not to follow through with plans to enroll in college. By not enrolling in the specific college program he saved himself a decent chunk of change. This may seem like a good idea at face value, but what did he really accomplish? He chose not to invest in himself, which ultimately might mean that he won’t increase his income as much as he would like to. Not investing in yourself is always a dumb money saving idea.
Chasing interest rates.
Small deviations in interest rates will not make you rich. Especially if you only have a tiny amount of savings to begin with. It’s also no secret that interest rates suck at the moment and are down across the board. Switching from a bank account that pays .25% higher than your current savings account is really not worth it in the long run. The extra interest earned will be very minimal and you’re leaving the relationship that you may have built with your bank. Plus what will happen when your previous bank increases its interest rates, will you run back?
What dumb money strategies would you like to expose? Do you agree or disagree with any of the strategies mentioned above?
My wife recently financed a car to build credit. Of course, it wasn’t the ONLY reason. She didn’t have a car previously and we were moving out of walking distance from her job.
That said, we discussed the pros and cons of buying a cheap used car around $2k (what we had in savings at the time) or financing a nicer used car for around $10k with a $1k down payment.
Aside for being able to buy something a bit more reliable for out money, the big reason we financed was to build credit up. She declared bankruptcy last year and a car loan, a secured debt, was just about the only kind of credit she was able to receive to help build up her credit score for when we are prepared to buy a house (NOT for the tax breaks) in a couple years.
I’m fine with people chasing interest rates as long as they understand the time investment vs the rewards. If they think it’s worth their time to make an extra .5%, then I say more power to them. I’m lazier than that. 🙂
The house thing drives me nuts. If you read pf blogs, you will always come across the person who says “Paying off your house early is silly since you lose the tax advantages”. Huh?! Yes, please let me pay extra tens of thousands of dollars in interest so I can get than magical write-off every year. We don’t even get a tax break since the standard deduction is higher than itemizing that stuff…so it’s even sillier to suggest that to me…