Financial Savings Backfires

Saving and investing in your future are sound financial decisions; however, Eric Rosenberg shares ways financial savings can backfire.

Are you saving too much cash? That is not something that many of us think about very often, along with other questions about over-investing and over-saving. It is great to save, but it is important to put those savings and investments to good use and not having financial backfires.

Don’t Save Too Much Cash

You never thought you’d hear a finance blogger writing about saving too much, but the day has come. Some people save way too much cash.

For a typical person, your checking account should have enough to cover upcoming expenses. I keep about a month’s worth on hand just to be safe. In cash savings, it is smart to keep an emergency fund with about 6 months of living expenses just in case you lose your job or have a serious emergency like needing a car replacement, new furnace, or unexpected medical cost.

Beyond that, your emergency fund is probably too big. Even the best savings accounts today only pay about 1% interest. Your money should be making more for you than that, invest!

Don’t Invest Too Much in One Place

For any savings beyond your six month emergency fund, or possibly a savings account to pay for a specific purpose like a wedding, down payment, or upcoming trip, the best place to put your longer term savings is in longer term investments, like stocks, bonds, and mutual funds.

When you are investing, it is a good idea to follow the old saying to “not keep all of your eggs in one basket.” Investing everything in one stock or one industry is asking for trouble. If that company has an unexpected turn to bad earnings or even a worst case scenario like Enron, you can lose a lot quickly.

The best place to new investors, according to famed investor Warren Buffett of Berkshire Hathaway, is an low-fee S&P 500 index fund. Over the last 25 years, the S&P 500 has had a 25 year annualized return over 10%. That is way better than the 1% you can get at the bank.

Don’t Buy Too Much House

I am looking at buying a new house at the end of the year, and shopping for real estate makes it easy to dream. Looking at the $800,000 home overlooking the nature preserve is a lot more fun than the $300,000 house on a boring street, but that boring street can save you a fortune.

If you buy a house with a big payment and can’t afford to do fun things you like anymore, you are “house poor.” It is easy to get into that tough situation, but there is some recourse if you are already there. Turn extra space into a money maker to avoid getting burned by the purchase.

Companies like AirBnB allow you to rent out an extra room or two to make money from your home and other resources help you rent out your garage or extra storage space for extra income. And don’t think it is taboo, even some of the wealthiest American’s are making money renting out parts of their homes.

Don’t Buy a Car You Can’t Afford

I’ve always dreamed of owning a McLaren F1 so I could zip along the coastal highways at 200 miles per hour, but that is neither legal nor practical. However, my 2007 Toyota Corolla is very practical, and with no loan the car doesn’t cost me more than standard maintenance, insurance, and gas.

But some people do buy sweet cars on a whim. After watching Vincent Chase buy his buddies Maseratis in Entourage, it is hard to blame you with all of the societal pressure to drive an awesome, new car. But if you find yourself digging out of debt to pay your payments, you can turn that car into income too.

RelayRides lets you take that awesome car, like Calvin did with his Porche Cayman in San Francisco, and turn it into profits. Or, maybe you can hold off the urge all together after zipping around the Bay Area in Simon’s Lotus Elise.

Listing your car with RelayRides is easy, and with great provided insurance it is worry free for your peace of mind and your finances. Give it a try today.