11 Mistakes You’re Making When Trying to Save Money
If you think its impossible to save money on your salary, think again. These totally doable tips from financial experts help you stash more cash for the future.
You have no idea what you're getting
When was the last time you looked at your phone or cable bill? Digital delivery of bills makes it so easy to pay that we rarely take the time to click the additional link to actually view the itemized charges on the bill. For example, you could save money if you buy a router for Internet service instead of paying a monthly rental fee. "By reevaluating the packages and rates of subscription services every few years, you may find there's a payment you don't need to be making or at least a cheaper provider for what you need out of the service," advises Alex Shvarts, CTO of FundKite, a Fintech company. Here's how to make a budget—and actually stick to it.
You're saving for "retirement"
Whoa! Isn't saving money for our golden years something we're all supposed to do? "When you are early in your career, don't think about setting aside money today as for your retirement. Instead, think about it as creating financial security for you to do what you want in the future," advises professor Jamie Hopkins, retirement income program director at The American College of Financial Services. So, yes, we still should be saving money for the future, but the real focus should be on creating sustainable income so we have the ability to do the things we want to do. "Sometimes this is investing in yourself or other assets that generate income, such as buying stocks or a rental property," says Hopkins. You'll also want to avoid these 15 other retirement-saving mistakes.
You pay off the smallest accounts first
It sure gives you a sense of accomplishment when you pay off all those pesky small accounts but are you really getting ahead of your debt by doing that? "In reality, you are still likely making the wrong choice by increasing your debt. Instead, focus on the highest interest rate debt first," says Hopkins. For example, paying $500 towards a $3,000 credit card bill with a 19 percent interest rate will save you far more than paying off a $500 bill with a 6 percent interest rate. You probably never knew about these financial tips—but you should!
You don't know how to invest
Investing or saving money for the future can be confusing and complicated. Comparing the benefits of a Roth versus a traditional IRA or deciphering terms like yields, P/E ratio, dividends, etc. is enough to make you throw in the towel and not make any decisions. "Don't let indecisiveness lead to you to inaction. Talk to a financial advisor who can counsel you on these decisions and work with you on a financial plan that accomplishes both your short and long-term goals," suggests Matt Rogers, CFP®, manager, Financial Planning Group, at eMoney Advisor. Here are 23 secrets your financial expert won't tell you.
Your savings don't match your raises
You might already be trying to save money by stashing aside a set amount of your weekly paycheck, but what happens if you get a raise? Is all the extra money being spent on more entertainment, vacations, or a newer car? Instead, "Each year, if you get a raise, increase the actual percentage you are saving," Rogers suggests. "For example, if you get at 3 percent raise, increase your savings percentage by 1 percent and take home a 2 percent raise." If you're a woman, don't make this huge mistakes when you ask for a raise.
You're not using your flexible spending account
Stashing cash in a Flexible Spending Account (FSA) to pay for health care is a great tool, if you use it. "You must use the money on approved purchases or else lose it at the end of the benefit year. So, if you are only making small contributions to an FSA, consider if it's worth the hassle to get the relatively small tax deduction," suggests Rogers. The tax deduction is more valuable if you know you will have something coming up, like braces for your child. Then, Rogers says, would probably be a good time to open up an FSA. This is what you need to know to lower your medical bills.
Your strangers with your savings account
If you're only depositing your grandma's yearly birthday check in your savings account, you're missing out on savings—potentially thousands of dollars each year. "If you don't have a workplace retirement plan or are struggling to save money annually in other accounts, get direct deposit," says Rogers. Choose a doable amount and schedule it to come out of your paycheck. "You'll remove the human temptation to spend that extra cash from your paycheck on something you don't really need." You won't feel the pinch when you save money like this.
You have paycheck celebrations—every week
"Celebration expenses" are what Vincent Baert, financial expert, myPOS calls the impulsive purchases people make right after payday. You feel good because your bank balance again is up so you reward yourself with a nice dinner out or an expensive pair of shoes. "Whenever I receive my paycheck I already have a rough estimation of my spending in mind; the deeper and more detailed that rough estimation is the better I am at money saving this month," says Baert. This doesn't mean you have to give up celebration purchases, you just have to plan for them. "Set the limits and follow through." Check out these 12 simple tricks to save money at restaurants.
You are enrolled in auto pay
Wait just a minute! Autopay is easy, convenient and means bills are paid on time. How can this be a mistake? "Auto payment options allow me to pay on time but do they allow me to control how much I pay in draft fees? Do they allow me to be flexible with my budget this month?" Not so much, says Baert. "An automated bill payment is something you do not really control. It's a constant, not a variable." Check out these surprising habits of rich people.
You don't communicate with your partner
Money is never a popular subject for couples in long-term relationships. But not chatting about financial matters, like saving money, could lead to empty cash reserves and stress down the line. Rachel Rabinovich, director of financial planning at Society of Grownups in Boston, says your first step is to clearly define your short-term and long-term financial goals. "Go over some scenarios you might come across in your life together and discuss how you might handle them," she suggests. "For example, one of you gets a nice raise. How would you like to use that money? Or you've got some money in investments, and the stock market takes a turn for the worse. How do you respond?" Here are ways to finally stop bickering with your partner about money.