The Art of Saving Money: 5 Most Common Mistakes

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

There are different accumulation strategies, and it is never too late to change yours in order to accumulate faster, more and without compromising the quality of life.

If you have already started saving money, congratulations - this is a smart step towards a secure future. Ideally, your cash "safety cushion" should be enough for six months of life without financial income. But even if every month you make a profit and increase your savings, this does not mean that your strategy is perfect.

Financial Planner David Blaylock analyzed common fundraising strategies and provided some tips for improving them.

Strategy # 1. Putting Aside What Remains

So you pay your monthly bills, maybe spend a little on entertainment, and then whatever remains is sent to the bank account. Knowing that you, in principle, have money, you can spend more than you should, and then spend the funds intended for accumulation. It is also difficult to set yourself a specific savings goal, because you can never say for sure how much will remain after all the expenses. You can try another way instead.

So how should it be?

The very first invoice that needs to be paid after paycheck is your savings account.

Make it your rule and treat it as a mandatory and most important part of payments (of course, if you have enough money to pay all other bills).

Create an automatic transfer of money from your bank card to a savings account at the beginning of the month or from each receipt. If you just put on such an automatic transfer of money and forget about it, after a while the amount of accumulated funds will greatly surprise you.

Strategy # 2. I transfer money to a savings account

So, you are saving money on a regular basis - that's great. And a savings account with a plastic card is very convenient. But there are also disadvantages here.

If you run out of money, you run the risk of withdrawing your savings or even spending it on an unexpected but highly coveted purchase. And, most likely, you will do this, because it is very easy to withdraw money: they are always within reach, you do not even need to go to the bank, you just need to use an ATM.

So how should it be?

Open a deposit in the bank for 6 months or for a year. This way you will definitely not waste your storage money. Just don't invest everything. Leave some in your regular emergency savings account.

Strategy number 3. All my savings are in one account

When you have only one savings account, it seems that money is accumulating on it quickly and there is enough money for everything. If you only save up for one thing, for example, for an apartment or for vacation, then everything is in order. But if you have multiple goals, one bank account makes the calculations difficult and you don't see concrete progress. It is more difficult for you to understand what you have enough money for and what you will have to wait with.

As a result, it turns out that by spending savings, for example, on vacation, you do not leave anything for a new car.

So how should it be?

It is better to create several accounts, each of which will be dedicated to a specific goal, for example: "home", "vacation", "education for a child." This will make it much easier to calculate your finances and see real progress.

Strategy # 4. I save large sums at once when I can

Some people do not save money on a permanent basis, but save large sums immediately when they have a lucky break. With this way of accumulating, feelings of abundance and guilt alternate. The last one is when you have to take money from your savings. Frustration from this can even discourage the desire to save money again someday.

So how should it be?

Your best bet is to set your own savings goals and strive for them. Determine the specific amount of money you want to save each month. If it seems to you that it can be increased without compromising the quality of life, do it. But! Contributions must remain consistent and the same.

Strategy # 5. I Postpone All I Can

Despite the need to have savings, you should not get too hung up on this and deny yourself the pleasures. They are the ones that help us stay happy and maintain mental health.

So how should it be?

If you didn’t have a month in which you could contribute money to the “emergency fund,” put off all other payments and treats until you can.

When your six-month emergency fund is replenished, Blaylock advises you to change your strategy. Since small cash savings bring little money, it is worth considering longer-term investments at good interest rates.