You can save a lot more money by avoiding money-saving mistakes like these. Saving money doesn’t have to be difficult when you follow these nine tips instead. More people may be saving more money than ever before, but that doesn’t mean it’s easy. A lot of people make mistakes that may lower their initial savings rate. However, just because you have made a mistake doesn’t mean you have to keep making them. When you know better, you do better, and finances are just one part of your life that rings true.
We’ve gathered some common money mistakes and what you can do instead.
Not Prioritizing Your Saving
While you don’t want to ignore high-interest debt to focus on saving money, you also don’t want to prioritize some types of debt over setting money aside for the future. This is probably one of the biggest misunderstandings people have when trying to save money.
For example, federal student loans with low interest rates and mortgages are typically considered forms of “good” debt. Depending on the interest rate on your student loans or mortgage, it might make sense to put saving for retirement or beefing up an emergency fund first, before you focus on drastically reducing your debt.
You should prioritize saving over debt repayment if your employer matches other retirement plan contributions and if the expected return on your plan is higher than the interest on your student loans or mortgage. That way, you’ll have more money set aside for the future, and that money will have more time to build interest and grow.
Mistake #1: Not prioritizing savings goals or setting goals
One of the biggest mistakes you can make when you are trying to save money is not having something to save for. It’s OK to want to save money but what makes wanting to save money stick is knowing what you want to do or achieve. I use the example of a road trip when I talk about setting savings goals. You need to know where you want to go to set the GPS so that you can get actionable steps to drive there.
What You Can Do Instead: Sit down and write out a list of several things you want to accomplish with your finances. Once you have your list, decide which goals you want to achieve at this time next year, this time in three years, and this time in five years. Five-year plans are suggested, but a lot can happen in five years, so I want you to make goals that you can complete sooner than that. Setting goals lets you know how much money you need to save and gives you an amount to strive for.
Mistake #2: Not following an actual budget
Spending your money without a plan can be dangerous. When you don’t budget, you are setting yourself up to be reckless with your spending and fail at any money goals you set for yourself. When you aren’t budgeting correctly, you may spend money you don’t have and live paycheck to paycheck. Living paycheck to paycheck sucks, and it’s even harder to achieve any financial goals, like saving money.
What You Can Do Instead: Learn about budgeting and decide what works best for you, then stick to it. There are several different ways to budget and manage your money. Two of the most common are zero-based budgeting and the 50-30-20 method.
Zero-based budgeting is when you assign every dollar a job, and everything you bring in is accounted for. For example, if I were to use this method for Kshs 100,000, it might look like this:
- 25000 Kshs Rent
- 5000 Kshs Phone
- 15000 Kshs Utilities
- 20000 Kshs Groceries
- 10000 Kshs Car Insurance
- 5000 Kshs Gas
- 10000 Kshs Emergency Fund
- 5000 Kshs Car Fund
Mistake #3: Being cheap
To save more money, you may be tempted to spend less to hit your goal faster. One way to spend less is to buy the cheapest version of everything you can. Unfortunately, most items made cheaply do not last, so you will spend more money in the long run to replace it every time it breaks.
What You Can Do Instead: Look for ways to buy quality items at a discounted price.
Mistake #4: Not knowing the different types of savings accounts
One of the worst things you can do is let cash sit around. Suppose your money is in your checking account, not making you money. In that case, it might as well be buried in your backyard waiting for the apocalypse.
What You Can Do Instead: Check out a high yield savings account. Some financial institutions offer up to 25% more interest than a regular savings account. It may not be a ton of money at first. Still, thanks to compound interest, a few dollars here and there will turn into hundreds and eventually thousands if you play your cards right.
High yield savings accounts are great to house surplus funds and any cash you are using to save towards a financial goal, such as a home repair or emergency fund.
Mistake #5: Taking the easy way out
Taking the easy way out with your finances can mean many things. Still, for this article, I will assume taking the easy way out financially is when you spend money for convenience. It can look like:
- Paying extra for rideshare apps instead of using public transportation.
- Signing up for multiple streaming services instead of utilizing just one and library account.
- Eating out instead of making a meal plan and sticking to it.
- Buying items impulsively instead of waiting for sales or looking for coupons.
What You Can Do Instead: Make a list of all the ways you spend money to make your life easier and see if there is anything you can cut out to save some extra cash. That might look like taking advantage of any of the examples listed above, or it could look different. Paying for convenience is choosing to make the least amount of effort, which could end up costing you big bucks in the long run.
Mistake #6: No emergency fund
It’s estimated that 63% of Americans live paycheck to paycheck. With a limited cash flow, one significant expense, such as a car repair, could wipe you out financially if you have no savings to fall back on. In addition, so many people are one paycheck away from being homeless, which makes it hard to get ahead financially.
What You Can Do Instead: Start stashing extra money into a savings account. With the zero-based budgeting method we discussed above, you can give every dollar a job and make a point to put a dedicated amount away. Saving money can be complicated, so look into cutting back where you can.
Many people overspend on groceries, subscriptions, take-out, and shopping for fun, so make sure you are going over your expenses with a fine-toothed comb. Also, don’t get discouraged. A vast emergency fund isn’t built overnight. It’s made one dollar at a time.
#7: Not having proper coverage on vehicles, health, etc.
It’s easy to cut corners when trying to save money, and one way to do that is to cut back on insurance. However, it’s not the right way. I’ll use myself as a prime example.
My day job started to offer health insurance, and I held firm with my healthcare plan from long ago. However, while my monthly premium for this plan was much lower, I didn’t have any coverage regarding any mental health care. This meant I paid hundreds of dollars per month on therapy and medication. So I decided to switch during the enrollment period this year. Although I’ll still be paying over 10000 Kshs additional to my monthly premium, all medication and therapy are now covered. With this switch, I’m going to save almost 50000 Kshs a month alone.
What You Can Do Instead: Fully go through all insurance policies to ensure you have adequate coverage in all areas of your life, and your policies are paid in full for any discounts. Don’t forget about random insurance either, such as rental and pets. Our fur babies can cost us thousands, so make sure they are covered too!
#8: Not researching financial options and tools (re-evaluating every so often about your rates, your debt, etc.)
You can set up some things and then forget about automatic transfers to savings and online bill pay. However, one thing you shouldn’t forget about is researching at least once every six months to ensure you are taking advantage of the best financing options for you and your family.
For example, your student loan may seem like it’s at a great interest rate. Still, suppose you took the time to research a refinancing option. In that case, you could be saving thousands of dollars in interest alone!
What You Can Do Instead: Put time on the calendar to review financial products at least every six months. Interest rates are constantly changing, so financial institutions will offer bonuses if you sign up with them. Of course, you don’t have to change everything all the time (I’d recommend NOT to do that). Still, by checking twice a year, you can see if anything currently being offered will impact your current financial situation.
Mistake #9: Denying yourself / no fun budget
Most diets fail for a few reasons, but two major factors are: the chosen diet was not sustainable (for example, no more carbs) and banning food backfires. The same can be said for those who start a new budget or personal finance program to cut back drastically while not allowing themselves any wiggle room or fun.
When you deny yourself anything, you will likely rage because that’s human nature, and raging can derail you from any financial progress you could potentially make.
What You Can Do Instead: Include fun money in your budget. I’m not saying I put aside hundreds of dollars towards the next Sephora sale (it’s in November, by the way). Still, I am saying that it’s a great idea to give yourself a budget to work with. A fun budget can allow you to hang out with your friends, enjoy your hobbies or take some me time, all guilt-free.
#10: Buying Items Because They Are on Sale
Who doesn’t love a good sale? Very few people, it seems. But buying items on sale, promotion or clearance doesn’t necessarily help you save money. In fact, you are usually more likely to spend more when you shop the sales than when you don’t.
The only way you’d save money by purchasing a marked-down item is if you had initially intended to spend X amount but ended up spending Y amount, then put the remainder in savings. For example, say you had planned to buy a pair of shoes for 10000 Kshs, but they ended up being 7500 Kshs when you went to the store. You deposit the 2500 Kshs you didn’t spend on shoes in your savings account or invest it, instead of spending it on something else in the store. But if you spend that 2500 Kshs on other items, you aren’t saving money.
#11. Always Choosing the Cheapest Option
There’s a reason why people often say “you get what you pay for.” The cheapest option is usually precisely that — cheap and not likely to last for very long. For example:
- Say you buy a toaster for 1000 Kshs because it is the least-expensive option in the store. It seems like a good deal at the time, as all of the other toasters cost 3000 Kshs or more. You bring it home and start using it on a daily basis.
- Fast-forward two months, and the toaster’s, well, toast. It pops up right away whenever you try to make toast, even if you have it on the darkest setting. So you buy another toaster, for 1000 Kshs. That one also lasts for a few months, and so on. You’ll end up spending more time and money on cheap toasters than if you had purchased the one that cost 3000 Kshs and lasted for years in the first place.