If you think saving money is as simple as transferring money into a savings account, I’ve got some news for you. There is so much more to it…and for good reason! To make sure your money-saving efforts are effective, you have to be strategic. There are certain mistakes to avoid when saving money, and I’m going to walk you through them!
Why Saving Money is So Important
Before I dive into certain mistakes to avoid when saving money, I want to make sure you understand the importance of it.
There are plenty of reasons people should be saving money. I think the most important of the reasons is financial security. Obviously, the level of financial security will be tied directly to the amount in your savings, but anything saved can help you feel secure.
The thing is, life is filled with unexpected events. Some of them may be financially related, and others not so much. In terms of the unexpected events that have money tied to them, having something in savings can take the edge off.
If you have funds set aside for unplanned expenses, you don’t have to stress about how you’re going to take care of it. You don’t have to worry that a bill won’t get paid. You don’t have to worry about not being able to put food on the table. You can breathe a little easier, knowing you have funds to help cover the cost.
I can’t stress the importance of having an emergency fund enough. You will not be sorry you have one, especially when you need it…Now, on to the mistakes to avoid when saving money.
5 Mistakes to Avoid When Saving Money
Saving too much
Often times, people think that in order to save money effectively, it has to be a large number. That is so far from the truth. In fact, if you are putting too much into savings, you run the risk of taking it right back. To be 100% honest, I would prefer a client save $50 a paycheck and never touch it, as opposed to saving $500 and then needing to use it for bills or other priorities.
The key to saving money the right way is to make sure you have a budget in place that shows what you can realistically afford to save. Putting too much into savings can result in nothing getting saved in the long run. Luckily, it is fairly easy to find a simple monthly budget template online that can easily categorize your financial allocations.
Saving too little
On the flip side of saving too much money is saving too little money. If you don’t prioritize saving money, it could mean you aren’t saving enough. All that means is that you are spending more money than you should, and it likely goes to expenses that won’t help you get ahead in life.
You will want to refer to your budget in this scenario as well. Make sure your income covers all of your required bills and living expenses, then assess what is left over. You should factor in some fun spending, extra debt payments and savings. Let me give you an example.
Using simple numbers, if you have $500 left over after all bills and living expenses are covered, you’ll want to prioritize that number to fun spending, extra debt payments and/or savings. Extra debt payments and savings should take priority over fun spending. A balance of $200 for debt payments, $200 for savings and $100 for fun spending shows you have your priorities in the right place. This moves us nicely into the next mistake to avoid.
Saving with no priorities
Saving money just to save is not a recipe for success. Don’t get me wrong. Saving money with no purpose is better than not saving money at all, but you can get so much further by having intention with your savings.
Saving with no priorities likely means you don’t have any goals for yourself, or you haven’t really thought about it. The key to financial success is understanding what it looks like for you. When you know what you want out of life, you can start saving for those things.
Get intentional with your savings by having a strategy. What goals do you want to achieve and why? When do you want to achieve them? What will it take to achieve them? Check out the article The Best Way to Set Your Money Goals for my strategy on setting financial goals.
Saving for the wrong priorities
Maybe you do have priorities when it comes to saving money, but what if they are the wrong priorities? For example, if you are saving to take a dream vacation, but don’t have any savings for those unexpected expenses I mentioned earlier, you could be doing yourself a disservice.
What happens if you take that dream vacation, then come home to nothing in savings. A few days later, your car breaks down and you now need a new transmission. Not only do you have nothing in savings to help cover that cost, but may end up needing to use a credit card.
This situation (and the many other scenarios like it) can be avoided by making sure you are saving for the right priorities before the wrong ones. One of your top priorities should be saving for emergencies. Once you have that emergency fund handy, go ahead and save for that dream vacation! Not sure what your priorities should be? Read 8 Things Everyone Should Be Saving For to learn more.
Saving in the wrong account
The last mistake to avoid when saving money is saving in the wrong account. Your checking account should never (ever) be used for saving money. They are two entirely different accounts for a reason. A checking account is for money to move in and out and not sit for long periods of time. A savings account is for money to sit and grow.
Taking it a step further, you don’t just want your savings in any old savings account. If your savings is not in a high-yield account like those offered at online banks, you are missing out on free money! Online banks pay so much more in interest than regular banks, because they don’t have as many costs. They are based online, which means they don’t have to worry about expenses that come with physical locations.
Because of this, they are able to give you so much more in interest (right now it’s 2.25%). Regular banks (think Chase, Bank of America and Wells Fargo) currently pay .01%. Can you see the difference? You can earn so much more, just by keeping your savings account somewhere else. It’s also important to note that credit unions are somewhere in the middle.
Make the most of your savings by keeping it in an account that earns as much interest as possible. I share some of my favorite online bank accounts on the Raya’s Recommendations page.
Keep Track of Your Savings Progress
Now that you know which mistakes to avoid when saving money, let’s talk about what you should do next. You should always keep track of your savings progress, because it can keep you motivated to keep going! The closer you get to your savings goal, the better you will feel.
There are plenty of ways to track your savings progress. Keep a running spreadsheet, check in on your accounts regularly, and using a cute tracker are just a few ideas. Check out the kit I created called the CGS Financial Goals Planner and Savings Guide for more information and a tracker to leverage!
Need help saving money? The issue could be with your budget and spending! Schedule a free consultation with me and let’s work through it!
Related: How I’m Saving $1400 a Month!
Saving money can be so rewarding, especially when it’s done properly! As long as you avoid the 5 mistakes listed above, you will be successful with your money saving efforts! Do you have any tips to share for saving money? Have you made any of the mistakes above? Leave a comment below to share!