3 minor financial mistakes can add up to costly losses

Financial mistakes happen. Fortunately, many of the ways we let money slip through our fingers can be quite obvious and easy to avoid. Buying another speedboat or too many poker chips are good examples.

But some financial mistakes prove more costly than others. Some of these monetary missteps can involve some basic decisions, like where you simply store your cash, how much extra you dole out as you spend it or just applying discounts that can drastically decrease your bottom line.

What are common financial mistakes?

The list of financial mistakes is long, but it’s helpful to consider three relatively minor aspects of our financial lives that impact our bank accounts, spending habits and prices we pay. These three common financial mistakes include not using a high-yield savings account, going overboard with gratuities and failing to utilize online coupons and discounts properly and for the right reasons.

Why should I have a high-yield savings account?

An easy way to put your money to work is with a high-yield savings account. If you have cash that you don't need for immediate expenses, a smart and safe move is to find a savings account that earns a decent interest rate, especially when inflation can erode the relative value of your savings.

Let’s face it, your bank’s basic savings account likely pays a rock-bottom interest rate. As of mid-2023, the national average yield for savings accounts was a mere .25%. If you have $10,000 in a savings account that earns .25% interest, you’ll earn a whopping $25 in annual interest. That windfall might buy you a pizza or two, but if inflation is even a modest 3%, your money would lose $300 in purchasing power. That extra $275 could more than cover the average weekly grocery costs for a family of two adults and two children, according to U.S. Department of Agriculture statistics.

So, here are two options to consider that are better at putting spare cash to work for you than depositing it in a low-interest savings account:

• High-yield savings accounts. Many online banks offer high-yield savings accounts that earn significantly more interest than traditional savings accounts. Some of these accounts even offer higher interest rates than what you can get from a certificate of deposit. In June 2023, Bankrate.com reported the annual percentage rates on high-yield savings accounts as high as 4.85%.
• Certificates of deposit. CDs are another option for earning more interest on your cash. CDs are essentially loans that you make to a bank for a set period of time. In exchange, the bank agrees to pay you a higher interest rate than what you would earn with a savings account. Rates were over 5% in June 2023.

It is important to consider your risk tolerance and investment goals – especially when you are at or near retirement age – when choosing a strategy for earning more interest on your cash. If you are looking for a safe, low-risk investment, a high-yield savings account or a CD may be a good option for you.

The key is to shop around for the best rates. Interest rates offered by banks and financial institutions vary widely. Also, take your needs into consideration, and not all savings accounts and CDs are created equal. Some accounts have minimum balance requirements or monthly fees. Part of a successful savings strategy is to make regular deposits. After all, the more money you deposit into a savings account or CD, the more interest you’ll earn.

How much should I tip? Going overboard with gratuities

Advances in technology have improved the overall shopping experience. You can shop anywhere at any time, and user-friendly websites and apps make purchasing, for better or worse, practically effortless. Your purchasing options also are personalized based on your interests (thanks in part to your browsing history and the ads you’ve clicked on).

It’s getting easier and easier to spend your hard-earned money, and another trend you may have noticed lately is the ease with which companies get another bite out of your budget – through tipping. And those often over-generous and unconventional gratuities usually are automated for your so-called convenience.

Sure, tipping is a great way to show your appreciation for good service, and for some it’s a social pleasure. But it's important to tip wisely and be aware of the tipping expectations in different situations so that you can tip appropriately. If you're automatically tipping 20% on every bill and everything you pay, you’re probably wasting money. It’s like charging yourself an extra tax that you really don’t have to endure.

Have you noticed that tipping is now often expected for takeout orders and other purchases that traditionally were not provided with gratuities? People may be inspired to provide unconventional tips because the people who sell things are still providing a service, even if it is not in the form of delivering a plate to your table. For example, a delivery driver is still using their time and effort to bring you your food, and a barista is still making your coffee and taking your order. Also, it seems this expansion of tipping accelerated because of the COVID-19 pandemic, when takeout was the only option and public dining rooms were off-limits because of social distancing restrictions.

Indeed, tipping has become increasingly common in the United States over the past few decades. Experts say the decline of the spending power of the minimum wage is one reason for this ongoing trend. The federal minimum wage has not kept pace with inflation, which means that many service workers are struggling to make ends meet. Tipping is seen by generous customers as a way to help make up for this shortfall.

What’s more, the U.S. is increasingly becoming a service-oriented economy, which means that more people are working in jobs that involve customer service. This has led to a greater expectation of tipping, as customers feel that they should be compensated for the time and effort of the service providers.

For better or worse, technology continues to make the ability to spend money efficient and expedient, and a key culprit in the trend in self-taxation by consumers seems to be the expanding convenience of tipping. You’ve likely noticed that it’s now easier than ever to dole out a tip. Consumers are accustomed to tipping at bars, nightclubs, restaurants, salons and spas, for transportation and delivery services and to those who provide personal care, like dog walkers and house cleaners. Nowadays, the tipping craze has spread to the hotel front desk, coffee shops, retail stores and beyond. They’ve all conveniently implemented electronic tipping systems, which allow customers to tip with a credit or debit card.

Simply put, over-tipping can add up to be a waste of money. Remember, tipping is a gratuity, not a requirement, and you should only tip what you feel is appropriate for the service you received. If you are unsure how much to tip, a traditional amount is 15% to 20% for good service.

One suggestion is to consider some tipping guidelines to prevent excessive spending. For example, consider the service you received. Did the service provider go above and beyond? Were they friendly and helpful? If so, you may want to tip more than the traditional amount.

More importantly, consider your own financial situation. If you are on a tight budget, you may not be able to afford to tip as much. It is important to remember that tipping is a personal choice. You should not feel obligated to tip if you do not feel that the service was worth it.

Why are online coupons and discounts a big deal?

Online coupons and retail apps can provide significant savings by offering discounts on products and services, and they are available for a wide variety of businesses, including restaurants, retailers and service providers – just about anything you buy. These discounts can range from a few cents to a few dollars, and they can add up over time.

Before you use a coupon, take a moment to calculate the actual savings. Sure, if you're only saving a few cents, it might not be worth the hassle. It's also important to make sure the coupon is valid in terms of expiration dates and restrictions. Online coupons are a great way to save money, but use them wisely. If you're just blindly clipping coupons without thinking about what you're truly saving, you could be unwisely wasting time and money and purchasing items you may not really need.

There are some valid reasons why it’s a mistake to fail to take advantage of online coupons and apps that provide incentives with discounts. If you use a coupon or app every time you shop, you could save hundreds or even thousands of dollars per year. Savings can really add up over time. Also, online coupons and apps can help you save money on items that you would otherwise not be able to afford. Those on a tight budget may not be able to afford to eat out at a restaurant as often as they would like. But if you use a coupon or app, you may be able to get a free meal or a discount on the tab.

How can I find online coupons and retail apps?

Finding useful coupons and discounts is a key first step to start saving money. Here are some tips for finding and using online coupons and retail apps:

• Search for coupons and apps online. There are numerous commercial websites and apps that allow you to search for coupons and apps.
• Sign up for email alerts from businesses. Many businesses will email alerts to you when they have new coupons or apps available.
• Follow businesses on social media. Many businesses will post about new coupons and apps on social media.
• Download coupon and retail apps. There are a number of coupon and retail apps that you can download to your smartphone.

When using online coupons and retail apps, be sure to read the fine print. Some coupons and apps have restrictions, such as expiration dates or minimum purchase requirements. Also, be sure to compare prices before you buy. Just because you have a coupon or app does not mean that you are getting the best price.

By following these tips, you can save money on your next shopping trip, but you also need to be aware that coupons and discounts also can motivate you into spending money that benefits the business more than you.

Consider, for example, what is termed the “scarcity” effect. Coupons and discounts often create a sense of scarcity, which can make consumers feel like they need to buy the item now or they might miss out. This tactic is especially effective for items that are seen as popular or trendy.

Then, there’s the so-called “loss aversion” effect, which is the tendency for people to prefer avoiding losses over acquiring equivalent gains. This means that people are more likely to buy an item if they think they're getting a good deal on it, even if they don't really need it.

Yet another hook is the “anchoring” effect. Coupons and discounts also are used to anchor consumers' expectations about the price of an item. For example, if an item is normally priced at $100, but there's a coupon for 20% off, consumers will be more likely to think that $80 is a good deal, even if it's not that great of a discount.

Finally, you need to be aware of the “social proof” effect, which is the tendency for people to follow the actions of others. If shoppers see that other customers are using coupons or discounts, they're more likely to do the same, even if they don't really need the discounted item.

So, despite the potential to save money, it's important to be aware of the ways that coupons and discounts entice consumers to spend money. If you're not careful, you could end up spending more money than you would have if you hadn't used the coupon or discount.

Summary

Consumers can boost their savings by avoiding three seemingly minor yet common financial mistakes. These financial oversights include neglecting high-yield savings accounts, over-tipping and not utilizing online coupons and discounts.

People often store their cash in low-interest savings accounts. High-yield savings accounts and certificates of deposit earn more interest and can be a much better option for your spare cash. The trend of excessive tipping is alive and well these days as technology has made it easier to leave gratuities. Consumers are encouraged to tip wisely based on two key considerations: the service they’ve received and their personal financial situation. Tipping too much and for unconventional reasons can be thought of as a wasteful, self-imposed tax that you are under no obligation to pay

Another way to boost your bottom line is to exploit the benefits of online coupons and discounts, which can lead to substantial savings if used wisely. Consumers, however, need to be wary of certain psychological effects that promotions may leverage, including scarcity, loss aversion, anchoring and social proof effects. These tactics can tempt consumers into making unnecessary purchases, so it's crucial to stay aware and cautious when using coupons and discounts.