9 ways being too responsible can cost you

Socially Responsible Investing: Risks and Traps

You go through life looking to avoid risk. You look to save a dollar whenever you can. You're smart. Sensible. Responsible.

But is this approach to life really the best thing for your finances? There may be times when a little bit of risk is better for you long term, or you may be so focused on one financial goal while you are neglecting another.

Here are some examples of when being responsible has a financial downside.

1. You Have Too Much Liquid Savings

It always makes sense to have a sizable emergency fund to help cover unexpected costs, like a major car repair or medical emergency. But it doesn't make sense to carry massive amounts in a low-interest savings account to prepare for every conceivable disaster. Every excess dollar you keep in a basic savings account is a dollar that could be invested elsewhere, generating a bigger return and helping you build toward retirement. Opinions vary on how big your emergency fund should be, but few financial advisers recommend saving more than nine months of expenses. Don't steal from your future self by being too concerned about possible disasters now.

2. You're Too Focused on Saving for College

You're a responsible parent, and you want to help your kids pay for their college education. So you open a 529 college savings plan and pump money into it. That's great, but are you costing yourself future retirement funds in the process? In an ideal world, you can save plenty for both retirement and college costs, but it's important not to divert too much away from retirement. When it comes to saving, retirement should be your first focus. Your kids can always borrow for college, but you can't borrow money to retire.

3. You Always Buy the Cheapest Thing

Being frugal is usually a good thing. But there is some truth to the adage that you get what you pay for. If you consistently look to purchase the lowest-end version of a product just to save a few dollars, you may cost yourself in the long run. Sometimes things are inexpensive because they are low quality. And if something is cheaply made, you may end up replacing it sooner and costing yourself more in the long run. This is especially true for bigger ticket items like appliances. The best path financially is to search for value, not simply low cost, when shopping.

4. You Always Buy the Most Expensive Thing

Just like it's not necessarily best to buy the cheapest version of an item, you shouldn't reflexively go high-end all the time, either. It's a fine idea to pay more for quality and longevity in a product, but sometimes things are expensive due to unneeded bells and whistles, or because a manufacturer wants you to believe they have a premium product. Again, it's important to do your homework and find the correct balance between quality and price.

5. You're Too Helpful Sometimes

I would never advise against helping others. But there are some cases when you are putting your financial health at risk by lending others a hand. For instance, you may cosign a loan for your daughter so she can get a new car, but your credit could be ruined if she fails to make payments. You might "lend" money to your brother-in-law to start a business, even though you're fully aware he'll never pay you back. Generosity is okay, but it's best not to be too cavalier about lending or giving money to everyone that asks.

6. Your Investment Portfolio Is Too Conservative

You want to make sure that your retirement portfolio is protected from a stock market crash. So you invest heavily in stable investments like dividend stocks, bonds, and cash. This is fine if you are approaching retirement age. But if you're decades away from retirement, it pays to be far more aggressive. Sure, there will be times when your portfolio will take a big hit. But it will most likely go up over time, and you don't want to miss out on the years when there are big stock market gains. If you want to build the biggest retirement nest egg possible, it's best to shed your fear and invest heavily — perhaps even exclusively — in stocks when you are young.

7. You're Staying in the Same Job

So you like your job because it's got a steady paycheck and decent benefits. Staying put seems like the responsible thing to do. But there's some evidence to suggest that people who job hop can end up earning more. According to Forbes, employees who stay in a job longer than two years will end up earning 50% less in their lifetimes than if they switched jobs more often. Consider that the average raise these days is about 3%. Do you think you could command a bigger bump by looking elsewhere? If so, consider going for it. And don't worry about a short job stint hurting your resumé. Harvard Business review reported last year that there's no longer a stigma against staying at a position for a short period of time.

8. You Paid Off Your House Early

There's always a desire to pay off that mortgage as soon as possible. If anything, it's a massive psychological boost to know you own your house free and clear. But there is a financial downside to paying your house off early, especially when interest rates are low like they are now. Let's say you have a 3.65% interest rate on a 30-year mortgage. But let's say you could earn a 7% annual return by putting money in the stock market. Where's a better place for your money? When investment returns are higher than your interest rates, there's no real compelling financial reason to pay off a loan early.

9. You Want to Fix Everything Yourself

You can definitely save money if you're handy. From plumbing repairs to changing your own oil in your car, it's often silly to pay someone to take on things you can do on your own. But do you know your own limitations? There are many instances when an attempt to fix something on your own can make a problem worse. (I know this from personal experience.) By hiring a professional to handle some repairs, you may have a better chance of ensuring things are done properly and constructed to last. This will save you money in the long run.

Any other ways being too responsible costs us? Do the right thing and let us know in comments!

Related: 15 things you should stop wasting your money on

15 things you can stop wasting your money on
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9 ways being too responsible can cost you

1. Cable TV

With the advent of Hulu, Netflix, Amazon Instant Video, and Apple TV, there's hardly a reason to splurge on a fancy DVR system or even basic cable — so long as you're willing to be patient.

Most shows are added at least 24-hours after airing and some networks won't give them up until eight days.

See some great alternatives to cable TV here.

Via Business Insider

Photo Credit: Getty

2. Bank fees

Banks love to slap you with fees at the drop of a hat, but that doesn't mean you've got to put up with it.

"Consider going with a credit union, which are better than banks in many ways, to avoid some of these fees," says Andrew Schrage, founder of MoneyCrashers.com.

"If you travel abroad often, make sure you use credit cards without foreign transaction fees, otherwise you'll be paying an extra 3% to 5% on all your purchases."

Via Business Insider

Photo Credit: Getty

3. Extended warranties

Retailers push hard to sell you extended warranties — and conveniently pump up their sales figures at the same time.

Don't do it, Schrage warns.

"The only instance I'd recommend a warranty is in the case of a laptop. Otherwise, the warranties themselves can often cost as much as simply buying a used or new replacement for your item, or repairing it," he adds.

Via Business Insider

Photo Credit: Getty

4. The roof over your head

If you're blowing most of your income on a loft in Midtown, you're making a big mistake, says Jeremy Gregg, executive director of the PLAN Fund.

His organization provides loans to low-income entrepreneurs, who Gregg says he often sees spend more than half their income on rent and utilities.

The U.S. Department of Housing & Urban Development recommends spending less than one-third of your income on housing.

Via Business Insider

Photo Credit: Getty

5. Unnecessary smartphone data

"Many of us (including me) pick a cell phone plan, then never check to see if it's the right one for us based on our usage," writes author of "I Will Teach You To Be Rich," Ramit Sethi. "Because the average cell phone bill is about $50, that's $600 per year of money you can optimize."

When buying a new cell phone, Sethi likes to pay a little bit more upfront by choosing the unlimited data and text messaging plan. He then sets a three-month check-in on his calendar, and analyzes his spending patterns after a few months to see where he can cut back.

You can use this method for any usage-based services, he says.

Via Business Insider

Photo Credit: Getty

6. Online shipping

Nearly all retailers offer some sort of option that gets your purchases to your doorstep without additional fees.

Zappos and L.L. Bean are among the rarest breed of businesses offering free shipping on every single purchase, but most companies will demand a minimum purchase.

To help track down deals on shipping, use Freeshipping.org. The site stores information on expiration dates, tells you much to spend to qualify, and lets you search by store name or product.

Otherwise, check out CouponSherpa or Retailmenot, which offer discount codes for free shipping.

Via Business Insider

Photo Credit: Shutterstock

7. Cheap art

Environmental designer Pablo Solomon says picking up knockoff prints and other art is a great way to blow cash for no good reason.

"Nothing sends me through the roof like the art sold on cruise ships and at resorts," Solomon says. "(They're) basically glorified posters being sold as originals."

The best way to score deals on art is to track up and comers, he says. You can nab their art early on and laugh your way to the bank after they've made it big.

Via Business Insider

Photo Credit: Getty

8. Fast food

You're only hurting yourself (and your wallet) if you're feeding yourself out of the bodega around the corner from your home or office.

"I am shocked at how many people live paycheck-to-paycheck and yet routinely spend $10 per day on fast food and convenience store food," Gregg says.

If you're looking for an alternative to brown-bagging it, check out how to shop for the healthiest foods at the grocery store for the least amount of money, and start preparing your own food.

Via Business Insider

Photo Credit: Getty

9. Piecemeal insurance

Buying overpriced insurance for things like accidental death and diseases is an easy way to blow your funds.

"Instead of buying piecemeal insurance policies, get good term life insurance and disability insurance," says Sally Herigstad, a certified public accountant and Creditcard.com columnist.

Take a look at the types of insurance you should buy at every age.

Via Business Insider

Photo Credit: Getty

10. Lousy gifts

Personal finance expert Dani Johnson suggests you think twice before rushing out to buy Dad another tie this Christmas.

"You should make a pact with your friends and family to give back instead," Johnson says. "Pool a percentage of money you were going to spend on gifts and give a secret blessing to somebody who is truly in need."

If you want to buy a great gift without completely breaking the bank, check out these holiday gift ideas for under $50.

Via Business Insider

Photo Credit: Getty

11. Weight loss traps

Weight loss pills and supplements marketed as miracles for overweight couch potatoes are most likely traps.

"Not only are there enough pills and potions that you could start a new one each week, but the negative effects on your health outweighs the money you will waste," says nutritionist Rania Batayneh.

"This is a billion dollar industry and the truth is that a lean body does not come in a pill," Batayneh says.

Via Business Insider

Photo Credit: Getty

12. Lottery tickets

"Sure, you can (buy a lottery ticket) every once in a while just for fun, but never make a lottery purchase with any real expectation of winning," Schrage warns.

"The odds are significantly stacked against you, and why waste your hard-earned money on lottery tickets when you could be saving for retirement or treating yourself to a nice meal?"

Via Business Insider

Photo Credit: Getty

13. Brand new cars

"People get bored with cars quickly. They always want a new car and so they're always dealing with a car payment," says certified financial planner Michael Egan. "But it's a hugely depreciating asset. You don't want to be putting a lot of money into something that's going to be worth nothing after a certain number of years."

Look for used car options, which could save you a substantial amount of money. Check out Kelley Blue Book to get an idea of how much you should pay for a used car.

Another option is leasing a car. You can determine whether or not this is a good option for you by following this flow chart.

Via Business Insider

Photo Credit: Getty

14. Subscriptions

Subscriptions — to magazines, newspapers, and the gym — can add up, and oftentimes, we don't use them as much as we had originally planned.

Sethi recommends implementing what he calls the 'à la carte' method, which takes advantage of psychology to cut our costs.

"Cancel all the discretionary subscriptions you can: your magazines, TiVo, cable — even your gym," Sethi explains in "I Will Teach You To Be Rich." "Then, buy what you need à la carte. Instead of paying for a ton of channels you never watch on cable, buy only the episodes you watch for $1.99 each off iTunes. Buy a day pass for the gym each time you go."

It works for three reasons, Sethi writes: You're likely overpaying already, you're forced to be conscious about your spending, and you value what you pay for.

Via Business Insider

Photo Credit: Getty

15. A morning latte

Author of "The Automatic Millionaire," David Bach, coined the term, "The Latte Factor," which basically says that if you ditch your $4 latte every morning, you'd have quite a bit of money to contribute towards savings — about $30 a week, or $120 a month). Over the course of a few decades, that money could grow substantially.

Rather, invest in a nice coffee maker, even if the price tag is a bit steep. Oftentimes, spending more on high quality items can help you save in the long run.

It can seem counterintuitive to make purchases to save, but that's what some of the most successful money-savers do. They're not just buying things, they're investing in things — tools and services — that will eventually save them money over time.

Via Business Insider

Photo Credit: Getty


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