We all know that we should be saving — and yet, nearly 60% of Americans could not cover a $1,000 unexpected expense in cash, according to a Bankrate survey. While income and the cost of living are issues for many people, that’s not always the case: sometimes we are getting in our own way when it comes to saving. Are you holding yourself back by making any of these saving mistakes?
1) It’s unclear what you’re saving for
The problem: It’s difficult to prioritize setting money aside when you don’t have a clear vision of what you’re saving for. Knowing what you are working for will give you an incentive to save. It’s easier to forgo a last-minute invite for a weekend getaway when you know that money is going toward a big international trip that you’ve been dreaming about for years.
The solution: Set financial goals. Your financial goals should be based on what you actually want, not what other people think you should want.
2) Not saving in the right place
The problem: Have you ever found yourself pulling from your savings to cover impulse purchases? Have you had to withdraw from your investments to cover an unexpected expense? If so, there is probably a better place to keep your savings.
The solution: Be strategic about where you save. Keep savings separate from where you do your day-to-day banking, make individual accounts for each savings goal, and don’t use an investment account for cash you might need in the next 1-2 years.
3) Leaving it up to willpower and self-control
The problem: If you wait until the end of the month to save, there is a good chance that you will come up empty. We have all heard the phrase, “pay yourself first,” and that means putting money into savings as soon as you get paid.
The solution: Automate your savings in sync with your paycheck. Decide in advance how much you will save per paycheck and then create an automatic transfer from checking to savings on your pay dates. If your employer allows you to split your direct deposits, you can set up your automatic savings straight from the source.
4) Saving too much money
The problem: It sounds counterintuitive, but if you find yourself needing to pull money out of savings to cover your day-to-day expenses, you may be saving too much.
The solution: Rather than continuing the cycle of saving and withdrawing, set yourself up for success by figuring out how much you can realistically save each month, even if that doesn’t feel like “enough.”