8 Savings Mistakes Even Smart People Make

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You're not a finance expert just yet (that's probably why you're reading Wise Bread), and I don't expect you to make all the right moves with your money. The truth is, everybody makes mistakes — even yours truly — but it's important to check yourself before you wreck yourself when it comes to your cash. Take a look at these savings mistakes than even smart folks like you and I make and consider how to avoid these potentially costly financial faux pas.

1. Funneling Money Into Modest Growth Plans

Even avid savers can make mistakes when it comes to funneling money away for a rainy day or a future investment. Because if it's sitting in a modest growth plan, it's not doing you much good, and it'll take you much longer to reach your savings goals.

Joe LoPresti, registered investment advisor and creator of the Investment Education Institute, agrees.

"I think the biggest savings mistake that smart people make is putting a lot of money into modest growth plans like low APR savings accounts, CDs, bonds, mutual funds, or just simple 401(k)s, without putting some money aside for active investment — investments that will grow their money while their still earning it, not just preserving it for later," he says. "Buying 'safe' assets is something that smart people do, but what they don't consider is that those safe investments will not significantly grow the nest egg you're trying to establish. In fact, locking your savings up in low-yield investments may actually prevent you from growing your wealth during the up-swinging market that we're currently experiencing."

2. Avoiding Credit Cards at All Costs

While I'll never encourage you to be a spendthrift with your credit cards, driving yourself into debt, that doesn't mean you should ward off plastic altogether. Having credit builds credit, and you need it to make large milestone purchases like a new home. Just be smart about the cards you keep. Read the fine print and choose the best card for your needs to maximize the benefits. (See also: Should I Choose a Cash Back or Travel Rewards Credit Card?)

3. Sticking With Commodity Providers to Avoid the Hassle of Switching

I see this all the time within my circle of friends and among family members, and I can't say that I'm entirely innocent, either. But sticking with commodity providers — like cable, Internet, and cell phone service — because you don't want to fuss with the hassle of switching, can cost you big bucks over the long term, and give you a major headache. It may be in your best interest to at least research other options. Ask for employer discounts, switching incentives and other discounts, like military or student savings.

4. Buying on Impulse Instead of Cost-Comparing

Before you buy anything — an-y-thing — you should compare its cost to other retailers and available options. Whip out your phone right in the store and do a bit of amateur cost comparing to see if you can get it elsewhere cheaper. If you can, cool your jets and save that cash.

5. Saving Too Much — Yep, There's Such a Thing

Saving too much is impossible, right? Wrong. You can absolutely save too much if you have no plan for the money you're saving. What good does a load of cash do you if it just sits in the bank your whole life? Investing your money is how you'll make more of it (considering that you're investing wisely, of course), and you should start establishing savings milestones and planning the investments you'll make with the money if you want to enhance the quality — not quantity — of your life. (See also: 4 Smart Ways to Invest Your First $1000)

6. Waiting for a Monetary Milestone to Invest

"All investment professionals will tell you to wait until you have $5,000 to $10,000 before you should invest. That's wrong!" cautions Samuel Rad a Certified Financial Planner and instructor at University of California Los Angeles. "The only reason they tell you this is because it's not worth it for them to deal with you until you have enough money. The best advice is to start as early as possible with as little as possible.The quicker you get started on investing, the more compounding you will get. If you place all of it in a bank and wait until you have a big lump sum to invest, you will have lost time."

Rad provides an exercise analogy to drive his point home:

"Similar to lifting weights, you don't want to walk into a gym and try to lift 300 pounds if it's your first time lifting," he says. "Start with 25 pounds and work your way up."

I agree with Rad, but only if you don't have a large investment in mind. For instance, I'm saving for an investment property for which I'll need to put a substantial down payment. I'm not particularly interested in jeopardizing this investment by playing the market in the meantime, so I'm sticking to my milestone. In these cases, I think it's okay to stick to your original plan, but, like Rad says, if you don't have one, there's really no reason to wait to invest. (See also: 9 Silly Reasons People Don't Invest)

7. Failing to Consider the Fees Associated With Investment Accounts

Sure, you've saved a good chunk of change and you're super excited to invest, but have you considered how much it'll cost you on the backend? Nothing in life is free, and there are fees associated with your investment accounts.

"Not paying attention to the costs associated with administering your 401(k) or investments is a big mistake," warns Fat Wallet's Bryan Marsden. "They auto-deduct money and put it into 401(k) or other investments without looking at what the fees are for that account/investment. This is especially true if investing in mutual funds. Some of them have much higher fees than if you would pick, say, an index fund. When someone looks at an investment fee of .08% versus a .07% they don't think much of it. But if you take that and extrapolate it over 30 or 40 years, the differences can be significant in how much you pay out for fees."

If you'd like a bit of tech in your corner in this regard, Vanguard has a nifty expense tool to show you the difference between a 1.02% and .18%.

"Considering that some index funds can be around .06% and mutual funds can get at or over 1.5%, you get the idea," Marsden adds. (See also: ETFs: The Low-Fee Investment Option You Don't Know About)

8. Keeping Savings in a Low-Yield Checking Account

You're not married to your bank, so you don't have to bank with that particular institution for every financial aspect of your life. While you may be happy with your checking account, your institution may not offer the best savings account options, so it's important to look around before you decide where to stash your cash.

Are you committing any of these money-saving sins? Do you have other savings mistakes that smart people make that you'd like to add? Let me know in the comments below.

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Guest's picture

Excellent points and it underlines that you dont need to make huge chenges to make your money work for you AND make your money work more effectively.

It is simply a question of reviewing your finances and calculating what works best. Keep it simple, none of the above finance techniques require you to have accountant level knowledge. The key thing is to watch the investment fees, catchy interest rates can overshadow those costs sometimes.