We all love it when payday rolls around and the idea of using the influx of cash to buy a new pair of shoes or a round of drinks can be tempting. But it’s not always the best idea. Sure, having a budget is like being on a diet (you have to treat yourself now and then or else you won’t stick to it) but the key is putting some money aside.
If you haven’t been saving your pennies, there’s no time to start like the present. It may seem like a no-brainer, but there are some errors people make when they start saving.
Here are five saving mistakes to avoid to help you make the most of your nest egg.
1. Not Having an Emergency Fund
You don’t really know how important this rainy day savings is until you need it and, by then it’s too late. “This [emergency fund] is not your Christmas money, not your vacation money,” Mary Hunt, the owner of Debt-Proof Living, said in an email. “This is for really big, horrible things that you cannot predict and can happen … Unemployment, medical emergency or some other matter of life and death.”
2. Not Setting Up Automatic Transfers
“Automatic deposits for savings straight through your payroll direct deposit is one of the best ways to save,” financial educator Carrie Pink told Credit.com via email. “Money gets tucked away before you even have a chance to get tempted to use it.”
You can have individual accounts that help you save – one for spending, one for your emergency fund, one for a savings goal like a vacation or house, etc. – and set up automatic transfers to each, if you’d like. You’ll be happy you did this when you see you have enough to pay for your time at the beach without maxing out a credit card.
3. Ignoring Technology
“Budgeting and savings apps are packed to the brim with resources to help make money management easier,” Pink said. “You can set alerts if you are going over budget, bill reminders, set automatic withdrawals and use categories so you can track every dollar.” Consider using a free app so you don’t take on an additional expense.
4. Being Vague with Your Savings Goal
It’s easier to lose the motivation to save if you don’t set clear and specific savings goals for yourself. Pink advised using the five W’s and an H to help: “What is the goal, who’s going to contribute, where are you going to stash the cash, when is this goal due and how much do you need to accomplish it?”
5. Letting Debt Stop You
Paying off debt may not seem like a way to save, but it can be. “Debt reduces your ability to save, but only temporarily,” Pink said. The sooner you pay off any outstanding debts, the less you’re going to pay in interest and can save over time. (You can read this guide for tips on how to get out of debt.)
While it’s important to set money aside, there are also financial benefits to paying down your debt, like improving your credit score. You run the risk of damaging your credit if you are in too much debt and can’t keep up with payments. To see how your debts and spending habits are affecting you, you can view your free credit report summary, updated every 14 days, on Credit.com.
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