Our human mind is preset to try
buying anything which has a lower cost and always looking for many tips on
saving money out there, but there
are some that are just dangerous or potentially expensive. Many of
these are possible in good ideas, but as we are indulging our inner tightwad, here are some things that aren't worth the time
to skimp on, or else involve being penny wise and pound foolish. While making
any saving strategy you should make sure yourself that they do not overlap,
backfire or contradict each other. Here
are seven cheap saving strategies that can backfire.
1.
Buying Health Insurance with the lowest Premium
Everybody
wants lower health insurance rates, but you could wind up with sorry if you buy
by premium alone. Skimping on coverage can leave you financially exposed and
wishing you had spent more for better protection and service. Low premium means
high risk. These limited plans may not apt for everyone and they could end up
costing more if you need expensive care. The problem is that insurance
companies are advertising these unbelievably low premium health insurance plans.
Health
Insurance is a long-term complex contract coupled with complex services.
Comparison of premiums could be largely misleading and could result in a
disaster. Comparing Health Insurance requires deeper insights into the overall
insurance contract called policy wordings over and above price comparison. That doesn't mean that you ignore the price. But when
comparing health insurance quotes and policies, make sure you compare apples to
apples, but while comparing, always remember that sometimes these apples are
rotten.
In other words, the premium may be
cheap, but the co-pays and the portion of the costs for which you're
responsible are not. Obviously, your budget whatever it is, and that is better
to have not-so-great health insurance than no health insurance.
2.
Not Buying Supplement Health Insurance Policy
Most
of salaried people must be having their employers’ health insurance plan which
must be covering self, spouse, children and parents or some of them. Most employers’ group insurance schemes offer
limited sum assured, say Rs1-3 lakh which may not be adequate to take care of
the medical expenses of employees and their families. This will become crucial
in future because medical costs are growing at 12-18 per cent every year, so
are health risks due to stress and overwork. In the worst-case scenario, like
downsizing, a person without supplement individual health insurance policy can
be exposed to risks till the time he is covered again. Buying a separate cover
for self and family will help you prevent a dent in your savings.
So even if your employer
provides a good health cover right now, what about retirement? When you go to
health insurance companies later to buy the plans, be sure that you will not
get it or you will pay in gold!
3.
Not
buying Term Insurance
Many investors have discarded
the possibility of buying term insurance as they don’t get any money back at
maturity. They see as investment product in the mirror of insurance so they buy
only traditional plan or any policy which combines investments and insurance
and offer its money back later.
It implies people don’t
understand the meaning of ‘insurance’. The insurance cover means a corpus which your dependents receive
should be able to provide the current life style for them for regular
day-to-day expenses of your family with an inflation adjusted return, pay your
current liabilities, emergency expenses
and meet the goals you share and buy assets which you wanted them to own.
Millions of people tend to buy
unit-linked insurance plans (ULIPs) which they don’t need and don’t understand
that product which has no power to meet their financial goals in the future,
just to save tax! They have bought even endowment or money back policies which
have neither given suffice life insurance cover nor provided any decent return,
the only reason turns out to be “Tax Savings”. These policies are secured products
that have your money safe, but the cost of lower returns. The return you get
from these policies hardly cross inflation figures, so you cannot get excellent
returns from these types of policies.
The situation may be worse
while stopping the further premium or surrendering of these policies; your pain
may be widened. But what is the effect, long-term as you still continue paying
huge premiums and it delivers a lower return than you can get from other
products in the long-term. It catches 22 situations.
5.
Falling
in Free Financial Advice
It may sound obvious that if
you are getting something for free than why should one pay for it. But when it
comes to financial advice free can be very costly. Many individual investors
resist paying fees and don’t bother about how much commission their financial
advisor or agent earns as they feel that respective financial product company has
been paying commission to their agents/advisors. But actually, it is the
investor’s money from which they are being paid.
Let’s say tax people buy a ULIP
with a premium of Rs 50,000 per annum, for saving of tax assuming they are in
the 30% tax bracket, they will save Rs15,000 in tax. But if that was ULIP with
a 40% premium allocation charges which is the most likely, Rs20,000 is lost the
moment they sign the document. So you save Rs15,000 and lose Rs20,000 as
charges. And yet, are the same people who say Rs15,000 for a financial planner-
too costly.
6.
Focusing
on Financial Fee, Not on Value
In the financial world, a lot
of investors want transform to their financial life through financial planning
exercise but they got a mental block because of the fees as they try to
negotiate with planners or hire someone having at the lowest fee. Imagine
someone offers to create for you a financial plan which will cover all the
aspects of your financial life along with research, analysis, recommendations
and personal support for 1 year. The cost of the whole package is Rs20,000. In
all probability, it is likely to be your concern about the fees and decided not
to hire him as fees become such a big thing for you that you deviated from your
main agenda. The fees became bigger than your financial life itself. An amount of Rs20,000 will not make
difference to the financial planner’s life, but that same Rs20k will completely
change your life. If today Rs20k
was your reason for not
hiring the planner; it can cost you
lakhs in the coming years through traditionally wrong selection of products by
yourself and/or under agents and distributors’ control.
7.
Shopping through Store Credit Cards
Research
shows that we feel less guilty when we pay with our credit cards than we do
while paying in cash. People
think they are simply making a smart move by saving 10% off of their initial
purchase, but now you are on a mailing list for all sorts of promotions and
discounts on that products which are not really you need. Looking through those
incoming catalogs or e-shop can once again trigger demand where there wasn’t
any originally; you will soon end up in a
debt spiral, which affects your financial position gravely. Also, if you are late on a
payment, interest and penalty rates can often be much higher on store cards
than traditional bank cards.
Remember,
a credit card is not always the best option to spend. Nevertheless, it can work
wonders to ease your financial situation, if used smartly, with care and
discipline.
We
love a good money saving tip. When you’re living on a budget, saving a few rupees
here and there can make a big difference. Some money saving tips is pretty
sound (like research a product before buying and finding it for the lowest
price). Other money saving tips can backfire and end up costing you more in the
long run.
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