by Lyle Daly | Jan. 22, 2019
Everyone's got an opinion on how to handle money. Sometime that's helpful, as following the right advice can be just what you need to cut your spending and save more every month.
Unfortunately, you'll also run into those cliché pieces of advice that do more harm than good. Here are five of the most common.
Sure, studies show that consumers spend more when they pay with a credit card compared to when they pay with cash. That doesn't mean you're destined to spend more just because of the payment method you're using.
Let's say you follow this advice and go cash-only. You'll need to spend more valuable time visiting the ATM. If you use an ATM that's not part of your bank's network, you'll get hit with fees, although many of the best checking accounts reimburse you for those. Better hope you don't lose your wallet, because there goes all that cash you had to carry around.
Or, you can pay by credit card and rely on self-control to avoid overspending. You'll never need to visit an ATM or carry much cash. If you lose your wallet, you just cancel your card and get a replacement. Best of all, any of the top credit cards will earn you rewards, either in cash back or travel points, on every purchase.
It's a favorite of financial gurus who love making people feel guilty about what they buy. Just stop getting lattes, or coffee, or whatever it is you get to treat yourself. Skip that $5 luxury, and you could save over $1,200 per year (assuming you're buying it at least five days per week).
This school of thought, that you should only spend on the bare necessities and penny-pinch your way to success, is a miserable way to live. Who wants to constantly second-guess their spending choices? And let's be honest, cutting a $5 expense here and there isn't going to make a big difference in where you stand financially.
You can stick to a budget without looking to save at all costs, and you'll be much happier for it.
The envelope system, for those unfamiliar, is when you set aside a certain amount of cash for each monthly expense by putting it into an envelope. For example, if your budget includes $400 for groceries and $200 for eating out, you'd put $400 cash in an envelope labeled "Groceries" and $200 in one labeled "Restaurants."
Since this requires you to pay for everything in cash, you'll miss out on the benefits you could get from using a credit card. You get no rewards and no purchase protections.
But the biggest problem with this system is how inconvenient it is. You spend time every month filling each envelope with cash, and you need to make sure to bring the right envelopes with you whenever you plan to buy something. That's a lot of time and effort to force yourself into following a budget.
Change the oil in your car. Fix the sink without calling in a plumber. Mow your own lawn. All tasks you can save money on, provided you have the equipment and the knowledge.
The issue here is that you get into the habit of trading time for money. You're cutting into free time you could be using to build more income, hit the gym, or just relax, and filling it up with odd jobs. And unless you know what you're doing, it's probably not an efficient use of your time.
If you like these types of projects, that's different. Otherwise, paying professionals for these jobs is a smart way to minimize the number of distractions in your life.
This piece of advice is particularly popular for saving money on clothes. After all, thrift stores (and consignment stores, and vintage shops, and so on) are where you can find huge price markdowns and amazing deals.
Except the truly amazing deals are few and far between. I've visited several thrift stores, and each time, I felt like I'd have better luck digging for gold. There's so much to sort through at the typical thrift store, and if you want to find something specific, it's a time-consuming process.
Just like with DIY, if thrifting is something you like, then go for it. It can be fun to go treasure hunting for an afternoon, even if you don't find anything. Just don't look at it as a reliable way to save money.
Once you do that, you won't need to use any complicated systems to keep track of your spending. To top it off, you'll be able to use your disposable income as you like without feeling like you need to preserve money at all costs.
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