Many people consider saving money to be one of their hardest financial struggles, if not the hardest. To be a good saver, you need to consistently be disciplined month after month and this takes a lot of hard work. A survey earlier this year just proves how difficult saving up can be as over a quarter of people were found to have no emergency fund of any kind and an even greater number don’t have savings that can cover 3 month worth of expenses.
Whilst some people find saving money at it, others are naturals at it so to speak. So if you’re part of the minority that puts money away regularly, congratulations—it’s an important part of laying the groundwork for a more secure financial future. But just because your balance is growing doesn’t mean there isn’t room for improvement in the way you save.
Here is a list of 5 saving mistakes that most people make and some strategies to counter this that will help you save money and hopefully make savings money that little bit easier!
Mistake: “I Save What’s Left Over”
What most people do: Most People ‘save what is left over’ after paying bills and making ‘fun’ purchases. The problem with this is that when you leave money that is earmarked for savings in your current account, you may start thinking you have more money to spend than you actually should! This is because you feel more confident about your balance and thus you won’t mind going out and spending more.
Advice: Pay Yourself First!
What you should do: Rather than saving what is left over, the first person you should pay each month is yourself. To do this, simply create an automatic transfer from your current account to your savings, at the beginning of each month. If you use this strategy and forget about it, you will be surprised at how much your savings will grow. (Only use this strategy if you normally would have funds eft over after covering your monthly regular bills)
Mistake: All My Savings Go Into One Pot”
What most people do: Most people put all their savings into one pot. This may be a good strategy as it is fun to see your balance grow but it is hard to know how much you have saved for different goals. For example, if your emergency fund is saved together with your deposit for a future house savings, you could easily deplete your emergency fund when it comes time to buy your house. Similarly, if your baby savings or future university education savings are in there too, it can lead to false confidence about how much you’ve actually saved, because mentally you’ve earmarked that money twice!
Advice: Create different savings accounts for different objectives.
What you should do: Create multiple sub-accounts for your savings as it will help you visualize your savings better for different objectives. Objectives can be based around emergency savings, future house downpayment or vacation savings. Many banks these days (especially if you use online banking) make this process super easy and you can even nickname your accounts so you know exactly what each one is earmarked for.
Mistake: “I Transfer Money Into a Savings Account Linked to My Current Account.”
What most people do: Most people transfer money to a savings account that is ‘linked’ to their current account. The problem with this is that you sometimes dip into your savings account to fund an impulse purchase because the money is easy to get to.
Advice: Create an ‘Untouchable’ Savings Account
What you should do: Only keep a certain proportion of your savings (emergency fund) in a easily accessible savings account. Keep the rest in an “untouchable” account as finical physiologists have stated that if you need to put in a bit of work or it takes a few days to get access to your money, it usually deters you from spending on a whim! This is a powerful tool especially for impulse buyers!
Mistake: Saving 10% post-tax rather than pre-tax
For Long Term Savings
What most people do: Most people, out of convenience, will save a certain proportion of income after they have paid income tax. Whilst this is good, it is not the best strategy especially if you are looking to stash your savings away for the long-term.
Advise: Save money in a SIPP
What you should do: If you know you are not going to need the money in the short term, open a SIPP account which is a private pension scheme. Whenever you pay into the account, 10% (or more if you are a higher rate tax payer) will be added to the paying in sum. You can already see the benefit of this and doing so regularly can bolster your savings in the long-term.
Mistake: “I Save as Much Cash as I Possibly Can”
What most people do: Most people will save as much money as they possibly can. Although savings is a top priority, saving too much can have a detrimental effect on your other financial priorities and can also deprive yourself of the occasional treat that would keep you happy and sane. Saving too much can also be bad as you are losing out on the chance of investing your money and letting in grow over time by the power of compounding!
Advice: Don’t Save at the expense of other goals.
What you should do: Don’t save at the expense of other goals like paying down your credit card debt or paying off your student loans. You need to have a savings goal in tandem with your other financial obligations. Once you’ve paid of your debts and stuffed enough money into an emergency fund, consider diverting a proportion of your savings into an investment account. Don’t be too risk averse or else all your cash savings will be eroded away by inflation!
Mistake: Not getting the best rate.
What most people do: Most people will open a savings account with there current bank due to convenience and ease. This is not the best strategy as chances are your bank will not be providing the best rates.
Advice: Search Online to compare savings offered
What you should do: Do a quick search online to find the best possible rates for you. Searching online only takes a few minutes but the difference in the amount you ‘save’ or the amount your money could grow can be huge!
Mistake: “I Save Big Chunks of Money When I Can”
What most people do: Most people only save big chunks of money when they can and this could be risky. If you only save big amounts of money whenever you get a windfall/bonus or feel like you can afford it, you may be an all-or-nothing saver who gets a thrill when you move the needle in a big way, or someone who tends to “borrow back” that savings from themselves.
Advice: Pick a sustainable and realistic savings goal
What you should do: One way to savings happiness is to save a manageable amount on a regular basis; say monthly. Come up with a real budget for how much you are able to save each month instead of guessing. And the same goes for any large chucks of money you receive, decide on a specific percentage of the money you’ll transfer to savings.
Sticking to a set monthly savings goal can help you get off the emotional rollercoaster that can come with saving and unsaving. A lot of people get feelings of exuberance when they save and then feel guilty when they have to take the money back. Steadiness in savings is the key!