Prepaying or Making Additional Payments on a Home Mortgage
Debt might always have a negative connotation, but Jeffrey Sklar, managing partner of , says pre-paying and making additional mortgage payments aren’t smart money-saving tips. How come? Your cash could be put to better use and make you more money. “Most folks don’t analyze if there is tax benefit to the interest deduction, as well as opportunity cost in taking the funds from a potential investment with a better rate of return,” he explains.
Over Withhold on Taxes From Your Wages to Ensure a Tax Refund
Depending on your tax bracket and incoming earning, your tax refund in April might feel like the only way you can save money. But this is a dangerous way to save, since it doesn’t directly benefit you in the way the dollars could if you invested them instead, Sklar says. As he explains, “Every taxpayer is better off investing their funds than providing the government an interest-free loan in the form of overpaying their taxes. It’s much better to have the extra money go directly into an investment each pay period.”
You Need Life Insurance Equal to Seven Times Your Annual Salary
There’s a lot wrong with this statement, according to Deglow. First and foremost, he notes, not everyone needs life insurance. “If there isn’t anyone who would become financially compromised should you pass prematurely and you have enough assets to pay off your liabilities, life insurance may not be a necessity,” he explains. However, if you do have a spouse and/or children, you need to crunch the numbers to fully understand how much you’re setting aside. As an example, John Deglow, CFP, AIF, at Unified Trust Company, explains someone who brings in $100K a year and opts for a $700K life insurance benefit, might be shortchanging their family. “Withdrawing 4 percent of $700,000 would provide only $28,000 annually for your family. A more aggressive withdrawal rate of 6 percent provides $42,000, again much less than the family was accustomed to,” he shares. And to make it more complicated, he notes this doesn’t address other liabilities, such as mortgages, credit cards, student loans, and more. His advice? Your life insurance should be as much as 20 times more than your income. Learn how to save money on homeowners and car insurance without doing much more than lifting a finger.