So you want to start saving but want to know about potential roadblocks? We’ve been there so we understand.
To help you out we have come up with a list of 5 major mistakes people make when they start saving money. It will help you learn from other people’s experiences so you don’t make their (costly) mistakes. Here we go…
1. Ignoring high-interest debt
Even before you start saving, the first step is to pay off any high-interest debt you may have.
Chances are such debt comes from over-the-top credit card use. Your goal is to pay off that debt and only then start saving.
You start by mapping your debt (put it on a paper) and creating a payment schedule. You can easily cut on some interest payment by getting a card with an introductory period of 0% APR and moving balance from your existing card to that one. This, of course, presumes you qualify for such a card.
However, if you don’t qualify, you will want to talk to your bank and come up with a debt reduction/elimination plan. Call your bank, visit a local branch and ask for advice.
If you have spare time, you may want to get a second job. And we have a pretty good list of side-jobs you may want to try.
Recommended guide:
2. Not having an emergency fund
First savings go to the emergency fund which is used *only* in case of emergencies. Period.
It is best to put at least $1,000 in this fund so you can act when an emergency occurs. And it will occur, no doubts about it. Whether it is an urgent emergency room bill or car repair, you’ll want to have some money put on the side for that.
However, you should NOT — and I repeat NOT — use this money for stuff that are not deemed as emergencies. This won’t lead you anywhere.
If you can – create two funds, one of which will be used for real emergencies and the other for rainy days. It will be this latter fund that you will use when you’re out of cash.
We have an article dedicated how you can make cuts on your monthly costs to save money, so check it out. Some or all of the money you will save that way should go to the emergency fund.
Also read: 7 Frequently Asked Questions About Emergency Funds
3. Having an emergency fund that’s difficult to access
When an emergency strikes, you will quickly need money so you better have that fund readily available. This, again, does not mean you should pull cash from it for daily expenses.
That being said, you do not want to make an emergency fund part of your retirement or other investment account — rather, make it a savings account.
Getting money before certain date from many investment accounts comes with a price tag. And you want to avoid that.
One more time we advise you to have two different funds with at least one of them offering an easy way to get the cash.
4. Not making automatic deposits
This doesn’t have to be true if you are *really* disciplined and are looking at your bank statements on a daily basis. That however presumes a lot of administrative work which most of us try to avoid.
The easier way is to put a certain percentage or a fixed amount of/from every paycheck to your emergency fund. And once you reach the emergency fund goal, repeat the same with the rainy day fund.
Or again you can take another job, and put the money you earn that way into the emergency fund.
5. Not using mobile app(s)
Modern mobile technology has made it easier for users to keep track of all of their different accounts. Some apps support different savings and investment accounts, and some can only keep up with a single account.
Technology is your friend so you use it to your advantage. You already have a smartphone — we hope you do — so find an app that will help you manage your finances while on the go.
If you are using services of a single bank, get their app. Or if you rely on multiple banks and funds (financial services of any sort), you can try an app like Mint works with a number of financial institutions and offers a number of ways to keep your money under control.
Conclusion
The mistakes outlined above are the most common, but there are definitely not the only ones. Try your best to avoid them, and start saving. It won’t be easy, but at the end of the day — you will be the one reaping benefits of financial independence.
As usual, we want to hear about your wins and challenges. Make sure to share them in the comments below. And good luck! 😉