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What Not To Do When Saving Money

Everyone can agree that saving money is a good thing. And yet, very few people actually do! Most struggle to reach their target while some eventually end up spending what little they saved. According to GoBankingRates, a third of the American population has $100 or less in their savings account. If you are familiar with the struggle and want to take active steps towards a better financial future, read on to learn about practical savings tips.

Difference between a rainy day fund and an emergency fund

Before we dive into the details, it’s important to distinguish the importance of two types of saved funds: a rainy day fund and an emergency fund.

A rainy day fund is savings that you might tap into every once in a while to cover for unexpected expenses such as car repair, a minor home project, or a health expense. A rainy day fund can be around $500 to $1000 dollars which is enough to pay for such fees without affecting your set monthly budget.

Meanwhile, an emergency fund is larger than your rainy day fund. Broken down, it is essentially the total cost of your monthly expenses times three or six. This savings should help cover living expenses just in case you get sick, lose your job, or are suddenly unable to get income for some other reason. Here’s a guide from the Consumer Financial Protection Bureau about how to build an emergency fund.

If you’re just starting to save, focus on a rainy day fund first. Saving for a real emergency fund takes time and having a little bit of money tucked away is better than not having any.

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Common Mistakes to Avoid When Saving Money

Now that all that is done and discussed, let’s move on to the practical savings tips! It’s easy to find resources telling you what to do when you’re beginning to save. But what about what you shouldn’t do?

The following are the most common pitfalls that people fall into when trying to save money.

Upgrade a gadget that’s still working well

Do you feel tempted to get the latest iPhone, upgrade your computer, or maybe get a better TV just because you’ve earned a little more money this month? Most people do and they follow through the temptation, only to quickly regret it later on. 

If what you have now still works well, you might want to hold on to an upgrade. The thing is most people who give in to their impulses are often never satisfied. There is always something better to get and you will never feel contented no matter how much you think you want them now. 

Try to appreciate what you own and learn that sometimes, less is more.

Related: 10 Clever Money-Saving Hacks to Supercharge Your Budget

Window shopping or visiting deals websites

Give yourself fewer opportunities to get tempted. Uninstall shopping apps on your phone and unsubscribe from shopping websites’ mailing lists. You can also block specific websites on your browser. This might not guarantee that you won’t buy eventually but at least it makes it inconvenient, which works well for people who are impulsive.

Not keeping track of your spending

It’s so easy to overspend when you’re not aware that you’re already doing it. Tracking your spending makes you extra conscious of where your money goes and helps inhibit impulsive shopping. Learning your spending patterns also helps you identify areas where you can cut back so you can funnel more money into your savings account.

There are plenty of amazing expense tracker apps that you can use for free! Check out this list from CNBC.

Not having a budget

You won’t know you’re overspending if you don’t even have a budget to begin with. A budget will help you set your financial priorities and give you a better idea of where your money should go. The NerdWallet recommends using the 50/30/20 formula for budgeting. This means setting aside 50% of your monthly after-tax income for necessities, 30% for wants, and 20% for your savings.

This matrix makes room for savings while also still giving you the leeway to spend on yourself. 

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Making it hard to access

You should be able to easily access your savings to pay for emergency expenses. Tying money to your retirement account, or even a short-term investment can cost you fees in penalties if you withdraw from it too soon.

Not automating it

You are much more likely to overspend if you can easily tap into a savings fund. Don’t give yourself the chance! Instead, use technology to your advantage by automating account transfers. This way, the money gets funneled into your savings and you don’t even have to think about it. The money grows and you won’t be tricked into thinking that you have more than you can afford.

Ignoring high-interest debts

Always pay high-interest debts as fast as possible. The longer a high-interest debt sits, the more you’re going to need to pay over time which just eats all the money that you are saving anyway. The best strategy is to work on saving money while actively paying off high-interest loans. Make sure your monthly spending accommodates debt payments. Put any extra income into paying down that loan once you’ve accumulated some money in your savings.

Not buying for quality

There’s a world of difference between buying cheap and buying frugal. Cheap items are usually made of low-quality materials which will most likely need repair or replacement once they break down. Over time, you will be paying more for cheap stuff than buying one good thing that lasts.

Shop for quality. This applies to clothes, furniture, professionals, and more.

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Final Word

Saving money is one of the smartest decisions you can make no matter what stage you are in life. It takes patience and a lot of self-discipline but having that peace of mind when it comes to your finances is worth the effort.

Related: 10 Clever Money-Saving Hacks to Supercharge Your Budget

References

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