This article first appeared on fundMyLife, the platform that connects you to the right advisers.
There’s a saying that goes like this, “save your money today and it will save you tomorrow”. It sounds easy right? Just two simple steps: 1) Put money somewhere, like an account, 2) Repeat Step 1. While simple in theory, saving effectively is monumentally hard. More so when there are so many things to pay for, like bills, leisure, travel, etc. In this article, fundMyLife shares avoidable mistakes when saving money, and how you can avoid them.
# 1 Not Having A Goal And Plan
One of the most common mistakes when saving money is you do it without a goal and a plan. It’s one thing to know that you must save, but it’s another to know what you are saving for.
The goal is a destination, whereas the plan will help you to get there. For example, you want a car that costs $100,000 in 10 years. We know it’s not that cheap, but bear with us. Not counting inflation, you will need to save $10,000/year, and $833.33/month. To put it simply, the goal is getting the car, getting it there by saving $833.33 is your plan. By the way, this is for illustration’s sake – typically you’d take a loan for your car anyways.
Without a goal to work towards to, you’ll eventually question why you’re saving in the first place. Without that motivation, you will soon fritter away that money. Saving towards retirement is a good goal, as is saving towards a possession that you wish to have. The important thing is to have a goal to work towards to, and a plan to help you get there.
As Friedrich Nietzche would say, “he who has a why to live can bear almost any how”.
# 2 Lacking The Discipline To Save
Now that you have a goal to work towards to, it’s time to put it into action. If you don’t summon the discipline to start, you will never get anywhere despite the best of plans. In addition, if you don’t summon the discipline to regularly save after starting, it is hard to maintain it over a long period of time.
Make it a habit to save regularly. Habits can be a powerful thing – as the saying goes, “we first make our habits, and then our habits make us.
# 3 Not Tracking Expenditure
Tangential, but equally important. To have enough to save every month, you’d need to be aware of what you’re spending on. Imagine, if your spending is uncontrolled, you’d be unable to have enough at the end for savings.
There are apps available to help you track your expenses so that you have enough for savings. We highly recommend the Seedly app – it’s been around for a while, together with strong community support online on their website.
# 4 Spending As Soon As You See A Pile Of Money
After a while, you’ll soon see a pool of money in your account. Delighted, you think it’s okay just to take a little bit for some expenditure. Say, a vacation to reward yourself for that good job accumulating your money. While we advocate living life well, being able to take a little means you are also able to take a lot out of the account. Soon, you might find yourself in square one.
There are two ways people save in general. Firstly, spend first then save. Secondly, save first then spend. The former allows you to get your expenses settled, whereas the latter way lets you meet your saving goals first. To avoid finding yourself in square one, regardless of how your save, make sure you split your money further into different pots. Instead of just two pots, i.e. expenses and savings, you can split your savings category further into travel, retirement, etc. That way, you keep your savings pots separate and do not risk overspending.
When you’re terrible at saving money, it’s time to consider savings plan, or an endowment. The tenure period of an endowment fund means you won’t be able to touch any of the money that you put. However, it’s important to not lock up ALL your money in there, lest you need the money for unforeseen emergencies in the future. This requires the help of a good financial adviser.
Alternatively, you can consider a fixed deposit – the fixed deposit usually has a decent interest rate, depending on how long you decide to lock up your money. In addition, the account penalizes you for prematurely taking the money out by removing the interest rate. This forces you to think long and hard before withdrawing from your fixed deposit.
# 5 Forgetting That Inflation Exists
Last but not least of the many mistakes when saving money, people often forget that inflation exists. In fact, it is one of the deadliest mistakes when saving money. At best, if the interest rate of your savings account is the same as the inflation rate, you’re just keeping up and not growing your money. On the other hand, if you happen to pick a low interest rate savings account, the real value of your money will decrease over time. Imagine saving up money that decreases in value over time due to the difference in interest rate and inflation.
To avoid this, you will need to save additional money just to adjust for inflation. Alternatively, you’ll have no choice but to invest a portion of your money so that it grows.
Connect with fundMyLife financial advisers today!
Hopefully, you are more acquainted with the most common mistakes when saving money. A lot of these problems can be avoided if you have a good financial adviser. He/she can serve as a sounding board and a friend as you travel in your journey to achieve sound finances.
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