Money-Saving Myths You Can Ignore

Photo: ThinkstockBy Lynn Andriani

Myth #1: Pay for Your Vacation After You Get Home...

...since you're getting a bonus next month anyway, right? Or, take advantage of the department store's buy-now-pay-later option on that beautiful rug for your living room, because it's an interest-free deal. But there's a psychological reason to pay ahead of time, says Elizabeth Dunn and Michael Norton, authors of Happy Money: The Science of Smarter Spending. They've found research that suggests you'll enjoy your vacation more if you aren't sitting on the beach while thinking about what a huge bill you'll be facing once you get home. We get more happiness from things--whether it's chocolate, a new book, or even a vacation--we pay for, but don't use right away, than we do from goods we put on credit cards or deferred plans.

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Myth #2: To Save Money, Shop Early

The "official" start to the holiday shopping season is Black Friday, with a staggering number of deals available on everything from jeans to video games to tablets. But Brent Shelton, spokesperson for the coupon site Fat Wallet, says if you hold out, you may find even better discounts: Stores have recently started offering "12 Days of December" promotions. Considering the average American spends about $750 on holiday gifts (thank you, National Retail Federation), doing your research (e.g., looking online before you go to the store) and waiting until after Thanksgiving weekend could make your number much lower.

Myth #3: If It Isn't Painful, You're Doing It Wrong

No pain, no gain may apply to many things, but Hitha Prabhakar, Mint.com financial advocate, says saving money doesn't have to be one of them. For example, when she started tracking her spending, she saw how much her daily Starbucks habit was costing her--but decided that with her late hours and early morning meetings, that was a necessary component of her productivity and her sanity. So Prabhakar found other areas where she could effortlessly cut costs, opting for generic groceries that were just as healthy and not as expensive. Prabhakar's easy changes still resulted in her discretionary spending dropping by about 4 percent.

Myth #4: You're Never Seduced by Price Tags

We all know that a $19.99 shirt is not $19--it's $20. But somehow, prices ending with .77 cents and .88 cents set off a different reaction in our mind. When our brain sees those numbers on a price tag, it thinks we're getting a spectacular savings (and we might be...but we just as well might not). Retailing expert Mark Ellwood, author of the forthcoming book Bargain Fever: How to Shop in a Discounted World, says this is neuroeconomics at work. Something about such a specific number suggests that the price has been calculated exactly against the cost of making that item, but it's really just a selling tactic, says Ellwood. You may not necessarily be saving money.

Myth #5: If You Haven't Saved at Least 10 Percent of Your Income at 50, Your Golden Years Will Be Red

It's bedrock advice: The smartest-easiest-bestest way to guarantee a cushy retirement is to begin socking money away from the very first day of work. If you didn't (or couldn't) take that advice and have been spending instead of saving--for years or even decades--while you may not retire to your own Richard Branson--style island, you can still play catch-up. Jocelyn Black Hodes, resident financial advisor at the women's financial website Daily Worth, tells latecomers to be aggressive (i.e., setting aside at least 20 percent of their income). Those 50 or older can make an additional $5,500 contribution to their 401(k) plan--so instead of the $17,500 cap that applies to younger workers, they can save $23,000.

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