Saving money is crucial to the quality of your wellbeing and life. It’s one of the ways that prepares you for the future changes or crisis and helps you get past them if you’re not wealthy enough.
It’s not difficult to save money, but it’s not easy as well, and you should know that there are 11 mistakes people tend to do during the saving process that knocks them down completely or delay the progress.
1- No goal
Saving money is a project like any other projects out there and all share the need of having goals to achieve for their successes. It won’t give you that much of an impact if you don’t know how your future should look like in the first place.
Also, when you think of project management, you know that a successful project imply that it has goals to reach that represents a happy ending.
Not identifying goals for your saving project is going to lead you to either a bad spending behavior or to quitting your commitment.
You can’t travel without knowing your destination first and without them, saving money is going to be a meaningless activity that will eventually fade away.
Start by having S.M.A.R.T goals, Specific, Measurable, Attainable, Realistic, and Time bound.
Don’t say: I want to be rich in my 50s – Say: I want to have 100 thousand dollars saved by the age I’m 52.
It has to be specific ($100K), measurable (you can track your monthly saving reaching that target), attainable ($100K in 30 years means $3K a year if that’s applicable to you), realistic (1B isn’t real for me now), time bound (you have 30-35 years to achieve that)
2- Planning long term only
Planning is also a key part in the success of any project. When you’re traveling, you must plan it ahead right? Where are you staying, how much money you need, what to pack according to the goals of that trip so a conference travel will require different packing than what you do for sea activities or hiking or visiting family, etc.
When you’re initiating your saving money project, one of the financial mistakes you can do is planning only for long-term saving goals and forgetting the short ones.
Because saving money can take much time till it reaps its results, neglecting the short-term goals can lead to falling for the temptations of the non-financial healthy options, delaying your progress in the best-case scenario.
What you can do here is to include short-terms goals as well as long ones so that the short-term ones can increase your motivation to keep going for the long ones.
3- Lack of strategy – where are you going to save from?
So you have identified your goals, both short-term and long-term, but you didn’t give much thinking to “how” you’re going to save that money. Which source(s) you’re going to use?
- Is it a spare income you have from inheritance or winning a prize?
- Is it through chipping pieces from your current expenses?
- Is it going to be from an additional income you have from a secondary hustle?
- Is it through selling stuff?
Not identifying the sources of the money to be saved is going to make it harder for you to judge if your goals are really attainable and realistic or not.
Let’s say you want to save $100K in 2 years, so it’s $4200 a month and if I’m coaching you I’ll be asking:
- Do you have that money already available through inheritance or winning a lottery for example? If No, then,
- Can you chip out that much from your primary monthly income? If No then,
- Do you have a secondary hustle that provides you with that much? If No then,
- Do you have enough stuff to sell to have that monthly goal, or even the annual goal? If No then,
- Can you mix and match 2 or more of the above strategies to accommodate that monthly target? If No then,
Your goal isn’t realistic and won’t be attainable. You have to add months or lower the goal.
That’s why identifying the strategy upfront serves as a litmus paper test for you to test if your goals are attainable and realistic or not and minimizes any motivational bumps across the road when not meeting your “fictional” goal.
You have 4 strategies mentioned above that you can use in silo or in junction with one another as explained in the coaching scenario above. Learn them and choose how you’re going to use them.
4- Poor needs and wants identification
So maybe you have identified your goals, and tested them with the strategy you’re going to use, and you chose to save through budgeting your main income, but you forgot to distinguish between your “needs” and “wants”, what will happen?
Here you won’t be able to maintain your saving because you’re spending money on things that seems important, but they aren’t.
The outcome here is either a delay in meeting your monthly target due to the unjustified spending, or a drain to your decision power leading to quick fatigue from repeatedly deciding what’s important and what’s not.
Here you will be insanely cutting expenses including those that are actually important to you, compromising your wellbeing on many dimensions.
Example would be cutting expenses to do car maintenance which can lead to accidents due to broken parts that could have been identified earlier damaging physical wellbeing, and also, it’ll lead to paying more to repair the car.
Instead, paying for maintenance would have been lower compared to paying for repairing the car and or treating yourself if hurt.
That’s why you need to identify these 2 lists upfront, the “needs” list; the ones crucial to you, and the “wants” list; the ones you can go without.
5- Poor spending behavior
Maybe you got all the above right, but you’re still using credit cards to buy things instead o cash or maybe you’re spending money on unnecessary things. These are examples of poor spending behavior that hide a potential money to be saved.
When you use credit cards in purchase, you have to settle within a given period or else you’re going to pay an extra small interest that you can be saved instead if you used a debit card or cash instead.
Loans as you know, mean that you’re giving back what you took plus interest. The longer the years, or the higher the loan, the higher the interest is, and You should be saving those interests. So consider loans only in very basic and big stuff like buying a house or treat a medical case.
Spending on unnecessary things should be controlled as early as possible to quickly build up your important saving funds first.
So be true to yourself about what you’re taking it for. Otherwise go with cash, which can be from your saving.
6- Wrong saving place
Some people opt to save only at their home, not trusting banks and their system over their money. Others choose only banks.
Saving only at home is a financial mistake as you won’t benefit from the interests you have by saving at the bank.
Saving only at the bank is a money management mistake in not having an available cash money for emergencies. Even though it’s not that frequent that you will encounter this scenario, but I’ve seen it in my work in the emergency room. I have seen people coming in the middle of the night with emergencies without access to their money in the bank due to lack of ATMs or malfunctioning system that day.
I believe the best strategy is to use both. The majority of your saving to be in banks, and small amount is to be preserved back home for real emergencies only.
7- Saving in the wrong bank accounts types
Another money management mistake is to choose the wrong bank account type. Banks have various accounts that you can choose from, and each comes with different benefits or interests.
Choosing to save in the “current account” means you won’t be having any interest added to your saving, so that’s a loss you shouldn’t be having unless it’s your conscious choice due to beliefs or religion.
Recommended choices to save with in banks are:
A) Saving account
It’s basic but still effective as you’ll have an interest on your savings. It’s not that big of interest but still is something worthwhile, specially on the long-term. Anything put here can be withdrawn any time.
B) Certificate of Deposit (CD)
This is a certificate that worth the money you choose to generate this certificate with and lasts for specific duration. The benefit here is that these certificates have higher interests than the saving accounts.
The drawback here is that you can’t withdraw from that money unless after the duration has expired or if you cancelled it, and when you do that, you will lose a percentage from the interest or from your money according to when you do that.
That’s why it’s a good choice for money you don’t want to touch, and it’s not a good choice if you’re saving for emergency fund.
C) Money market account
These have interesting rates alongside some restrictions including how much needs to be there initially or how frequent you can withdraw from or how much. This is also best if you want support not touching your money.
8- Starting late
Saving money is a slow process and mainly dependent on other factors like interest rates, or income you’re saving from. You can’t control these factors and make them increase to increase your saving, but you can control time.
You can start as early as possible and benefit from the longer duration you now have which will add to the growth of your savings.
When you start as a student, you have 40 plus years to benefit from the compound interest for example and more income to save from.
9- Not sharpening your saw
Learning is a mandatory piece of success to anything in this world and achieving your saving goals is no exception.
Without learning you won’t be able to do this right, and you might make some money mistakes that you could have avoided through learning.
One essential book that I recommend about money management in general and saving money in specific is the Total Money Makeover book by Dave Ramsey.
He talks about money myths, tips for saving money, and his famous baby steps to financial freedom.
Check it out and transform your finances.
10- No tracking
You can’t improve what you can’t measure, and you can’t measure what you don’t track.
Tracking your progress throughout your journey is key to making sure you’re still on track, it keeps the motivation going which is important to your consistency and commitment, and it provides you with areas you can improve along the way which might speed up your progress.
11- No support
We have mentioned that saving money is a long process and not having any kind of support can make this lonely journey more boring or increase the chances of you giving up on it.
That’s why it’s recommended that you have support in place to keep you going. This support can be internal or external, digital, or physical. Examples would be:
- You can be supporting yourself through daily affirmations or rituals.
- You can plan to have relative courses/books/speeches/events spaced out so that you keep your motivation going by refreshing yourself about the subject.
- You can identify 1-3 friends to do periodic check, and this can be done either face to face or through internet.