By Allison Kade
NEW YORK (LearnVest) -- Frugalista. Recessionista. In the past few years, people have coined a lot of silly words describing women and their approach to money, but the thought behind each of them is the same: You care about your hard-earned dollars and want to make them stretch.
That's true of most of us: We scrimp, we pinch, we try to feed our proverbial piggy bank as much as possible. Yet sometimes, in our excitement to be financial overachievers, we overreach.
It turns out there are a number of things that sound like they'd be doing good things for your money, and make you feel like you're saving more … when, actually, they're having the opposite effect.
So, before you let your enthusiasm run away with your wallet, check out the top eight mistakes people make when trying to do something good for their finances—that secretly set them back.
1. Paying Every Debt Equally
When you have multiple debts to pay off (a credit card here, a student loan there) you might feel like a rock star simply for keeping up with them all and dividing your attention in a lot of different directions. Which, in a sense, you are! After all, you should always pay at least the minimums on all your loans.
But, if you have extra money to pay down your debts, you’re doing yourself a disservice by dividing it equally. The debts with the highest interest rates grow the fastest, so you should focus your muscle on the most toxic debts first.
A hypothetical example: You have $5,000 debt spread over three credit cards ($15,000 total) and the cards have interest rates of 15%, 20% and 25%, with a minimum payment of $100 on each. You have $600 to put toward all your credit card debt ($300 for your minimums and $300 extra). If you put the extra $300 toward the cards with the highest interest rates first, you’d get out of debt nine months faster than if you split it up equally between the cards—and you’d pay over $1,300 less in interest in total! The amount you put toward your debt is the same, but simply allocating it differently makes a huge difference.
2. Falling for Flash “Sale” Sites
Buying a coat for $200 when it normally sells for $500 is a great deal—but only if you were planning to spend $500 on a coat, anyway. If you only bought the item because you were lured in by the promise of a deal, you’ve just blown $200, plain and simple.
Don’t let coupons, sales and special deals make you spend more than you intended, all while pretending that you’re saving money. This is especially true of flash sale sites that use limited time offers to lure customers into making a snap decision they might regret later.
Here are some more ways stores seduce us into buying, and how to see through them.
3. Skipping Insurance
Insurance payments can definitely add up. Let’s say you spend $30 a month on renter’s insurance. And $150 a month on car insurance. And $200 a month on health insurance. And $50 on life insurance. And we’re not even including other insurance policies like disability insurance or travel insurance or pet insurance or long-term care insurance.
It’s understandably tempting to save money in the short-term by simply skipping many of these kinds of insurance. Some kinds may not be right for you, but skipping the ones you actually need (like renter’s or homeowner’s insurance, health insurance, car insurance and life insurance if you have a family) can run you deep into the red later on. Choosing which insurance you’ll buy is all about knowing how much risk you can take on. If you skip health insurance and later wind up in the hospital, are you prepared for $300,000 in medical bills?
For a rundown of different insurance types and which you do (and don’t!) need, check this out.
4. Paying Minimums on Your Debt
Paying only the minimums on your loans may mean more cash in the short term, but it also means paying a whole lot more over time.
Let’s say you had $5,000 in credit card debt, at an interest rate of 20%. If you made the minimum payment of $200 per month, it would take you 11 years and ten months to get out of that debt! When all is said and done, you’d pay more than $8,400, which is $3,400 extra above the amount you borrowed!
If you upped that monthly payment to $500, you’d get out of debt almost eight years sooner. You’d also save almost $2,500 in interest payments!
7 Money Mistakes Women Make