You’ve heard it time and time again: “It’s important to save.” However, many people do not take it seriously. According to a recent GOBankingRates survey, 36% of people have $100 or less in their savings accounts.
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“We all say we’ll save whatever is left over each month,” said Steve Azoury, ChFC and owner of Azoury Financial. “However, this doesn’t always happen, as we find things to buy that we don’t really need. Saving is important to be able to continue paying for essentials and enjoy life.”
If saving for a rainy day isn’t as appealing as what you can spend your money on right now, take a look at the most common savings mistakes and find out what you can do differently.
Buy things you can’t afford
“When their spending is out of control, they can only save very little or sometimes nothing at all,” Azoury said.
What to do instead
“Before you make purchases, do the math,” he said. “If a purchase doesn’t fit your budget, you shouldn’t buy it. Consider waiting a day before making a purchase to determine whether you really need the item or not. Often, after waiting a day or two, you will realize that it was an impulsive ‘want’ and something you don’t really ‘need.’”
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Not having an established emergency fund
Azoury said financial emergencies can decimate your budget. “You shouldn’t have to borrow money to cover unexpected financial costs,” he said.
What to do instead
“You should try to save between 15% and 20% of your annual income,” Azoury explained. “Some of those savings should be allocated to an emergency fund. Your emergency fund should have three to six months of monthly expenses saved up. This should be enough to cover an emergency.”
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‘Paving’
Andrea Woroch, consumer and money saving expert, said saving is the act of spending money to save money.
“But if you buy something just because it’s on sale, you’re still spending money you shouldn’t, and those dollars can go further toward other important goals,” he said.
What to do instead
Woroch said you have to identify the triggers of spaving and find ways to combat them.
“For example, if you can’t resist a deal, turn off push notifications on deal apps and unsubscribe from store newsletters using Unroll Me,” he explained. “If you shop to manage your emotions (to feel better after a fight with your partner or to beat boredom), find other ways to deal with your feelings, such as going for a walk, calling a friend to vent, or picking up a hobby. .”
Leave savings in a traditional account
Woroch said this is one of the most common savings mistakes.
“Many people open a savings account at the bank where they have a checking account, but leaving their savings in a traditional savings account will cause them to lose free money,” Woroch said. “These accounts offer an APY of 0.46% on average and some banks pay much less than that.”
What to do instead
“You can earn more than 5% with a variety of high-yield online savings accounts,” Woroch said.
She also suggested looking for an account that compounds interest daily to grow your savings even faster.
Focusing on paying off debt before saving
While Woroch acknowledged that paying off debt is important, he said that at the same time, building savings is crucial.
“Keeping cash in an emergency fund will keep you debt-free in the future; this gives you a cushion of cash to cover unexpected bills or help you get through a tough financial time,” Woroch said. “Without this cash reserve, you will go back into debt.”
What to do instead
Woroch said that as you work to build up your savings, consider getting a balance transfer card, some of which offer up to 21 months interest-free.
“This will give you some time to invest more in savings without worrying about interest rates rising and derailing your debt repayment goals,” he said. “Always compare balance transfer cards… to find the best one for your financial needs and credit score, and pay attention to potential fees. Some charge a 3% to 5% balance transfer fee, but that could be less than you would pay in interest on the entire balance with your original credit card.”
Consider: How much does the average middle-class person have saved?
Save last
“If you wait to save after paying your bills and covering everyday purchases, you’ll probably run out of money quickly,” Woroch said.
What to do instead
“Treat savings like any other bill and pay yourself first, making sure you have enough to cover at least your biggest bills,” Woroch said. “You will learn to live with less and adjust your budget.”
Survey Methodology: GOBankingRates surveyed 1,063 Americans ages 18 and older nationwide between November 27-29, 2023, asking twenty-two different questions: (1) Which category best describes your current financial institution?; (2) Have you considered changing banks in the last year?; (3) If you considered changing banks in the past year, did any of the following occur? (select all that apply); (4) What feature, benefit, or other offering is most important to you when opening an account at a new institution?; (5) Are you currently satisfied with all banking products and services offered by your bank/credit union?; (6) Would you ever have different types of accounts at various banks? (i.e. checking accounts at Chase, but savings at TD Bank); (7) What is your preferred banking method?; (8) Which of the following is the most important factor for you to stay at your current bank?; (9) Which of the following bank accounts do you currently use or have open? (Select all that apply); (10) How much is the minimum balance you maintain in your checking account?; (11) How much do you currently have in your savings account?; (12) What amount of a sign-up bonus would make you consider switching banks?; (13) Have you considered using any app-only banking platforms (aka neobanks) in the last year? (e.g. Current, Chime, Dave, etc.); (14) How important is it to you that your bank is affiliated with a cryptocurrency platform/exchange?; (15) In the last year, how often have you issued a physical check?; (16) When was the last time you personally visited your bank?; (17) Why would you choose to visit your bank in person? (Select all that apply); (18) Have you had an overdraft on your checking account in the last year?; (19) How much do you trust your current bank to act in your best interest?; (20) How much do you trust your current bank to protect your private information?; (21) Do you trust regional banks more than national banks? and (22) How much cash do you keep at home? GOBankingRates used PureSpectrum’s survey platform to conduct the survey.
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This article originally appeared on GOBankingRates.com: I’m a Financial Expert: These Are the 6 Most Common Savings Mistakes People Make
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