Sometimes we think we're doing our finances well when those money-saving behaviors are really compromising the security of our savings. Sure, you know that following a budget and regularly depositing money into a savings account will build up a nice buffer in case you fall on hard times, but are you also doing things that could potentially put a big hole in that safety net?
Below are some of the behaviors that might appear to be beneficial to your bank account at first glance, but are really setting it up for a big loss:
1. Holding onto that low-interest account.
Yes, your account may not be earning anything, but certainly you aren't losing money, and at least it's safe in the bank, right? Well, if your money is sitting in a low-interest deposit account, you are, in fact, losing money.
Inflation is the gradual increase in the cost of goods and services year over year. So if the inflation rate is 2 percent, for example, an item that costs $1 today will cost $1.02 in a year. That also means that if your savings aren't growing at the same rate, that money is essentially losing value each year. It's tough to find interest-bearing savings accounts that match the rate of inflation these days, but keeping your money in one that earns little-to-nothing at all guarantees your future purchasing power will be decreased by that much.
2. Loading up on company stock.
Companies often offer employees stock options as an added perk, and for many, company stock makes up 20 percent , 50 percent, or even more of their retirement portfolio. After all, it's essentially free money.
Current and former Facebook employees will tell you that holding onto their company's stock was the smartest financial move they could have possibly made. Those who used to work at Enron might disagree with that sentiment.
Consider how much of your financial stability is dependent on your employer--you'd probably be in a tough spot if you lost that paycheck, but your retirement savings too? Banking your nest egg on the future success of your company puts your financial well-being in a very precarious position.
Most financial advisors won't recommend allocating more than 5 percent of your money toward any one investment. If you really love your company and believe its value can only be headed upward, never let your stake in company stock exceed 10 percent of your total portfolio.
3. Exceeding the FDIC limit.
In your effort to amass impressive savings, make sure you're spreading the wealth across more than one bank if necessary. Most people are well aware that FDIC insurance covers deposits of up to $250,000 in most cases; what they often don't realize is that this limit is per depositor, not per account. That means if you have several savings, CD, money market, or other deposit accounts with one bank, any amount of the combined total balances that exceeds $250,000 is unprotected in the event that bank goes under.
4. Eating from the dollar menu.
Dollar menus are a godsend for many of us. Food prices have been on a sharp incline year over year, so when it comes to the end of the month and your grocery budget leaves little room for more than a frozen burrito, an entire menu full of items that cost only $1 is incredibly appealing.
However, while stopping for a $1 cheeseburger every now and then may save you on your monthly grocery expenses, habitual trips to the drive-through could cost you thousands of dollars down the line.
According to studies by the Centers for Disease Control and Prevention, Americans spend as high as $147 billion on direct and indirect obesity-related costs each year. On an individual level, according to CBS, experiencing a severe heart attack results in an average total cost of $1 million! Do you have a spare million to cover the consequences of your poor eating habits?
5. Contributing too much to your 401(k).
When it comes to saving for retirement, the more you can sock away now, the better, right? Not necessarily. While making retirement savings a priority is great, you have to remember that you won't be able to touch that money for a long time--maybe several decades--without paying severe penalties (except in the case of proven, extreme financial hardship).
Over-commit to your retirement now and your personal savings will suffer as a result; hit a financial rough patch and they'll likely be depleted quickly. Experts recommend that you set aside 10 to 20 percent of your income for retirement--so the good news is that the more money you make, the more that can be allocated toward your golden years.
Including savings in your budget is the foundation to setting yourself up for a lifetime of financial success, and it takes real discipline to stick to it. Make sure you aren't undermining your hard work by doing things that can ultimately put your savings at risk.
Casey Bond is editor-in-chief of www.GoBankingRates.com, which provides readers informative personal finance and investing content, as well as the best interest rates on financial services nationwide.
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