Saving money, there is nothing to it right? All you need to do is put a little aside each month into an account and watch it grow. Well, not quite. If you want to do it right you need to know when and where to start. In some situations you could even be costing yourself money by putting it into the wrong savings. So in the pursuit of getting your savings plan right, we’re going to share some of the things you need to avoid doing wrong.
1. Saving money before you pay off all your debts.
If you really want to start benefiting from saving money, pay your debts off first. The interest rates you pay on credit borrowed is usually far greater than the interest you will accrue in a savings account. With that in mind, if you have debts but decide to put your spare cash every month into savings rather than tackling your debt quicker, you will pay more out on interest on your debt than you will grow on your savings. This will ultimately cost you more and will continue to do so until you pay off your debt. So first thing is first, clear your debts before you start saving to get the most from your money. It might sound simple, but ignoring debt from your saving plan is a mistake that many make.
2. Not getting the best rate?
It’s not just insurance and credit you need to shop around for to get the best rate, but savings accounts too. If you are not paying attention, your savings could be sitting in an account with a very low rate of interest when they could be easily transferred to a competitor company offering a far better rate. Over time this could have a significant impact on the growth of your funds. Pay attention and don’t be afraid to transfer for a better rate from time to time.
3. Waiting too long
The sooner you start saving the better. Many people make the mistake of waiting until they are ‘settled’ or ‘ready’ to save money, but the truth is there is no time like the present. The longer your savings have to grow, the greater the benefits you will reap so don’t put it off, start as soon as you can. The sooner you start, the sooner you also begin to generate good financial habits and behaviour. Don’t wait until you're too old to reap the benefits.
4. Joint savings and investments have a dark side – separation
Be very wary and very careful when it comes to investing in joint savings. It doesn’t matter how much you trust someone, sometimes the future will throw you a curveball and splitting joint equities and savings can be a nightmare, with much often frittered on lawyers and legal expenses. If you must go down the path of joint investments, make sure you keep a separate emergency fund, just for yourself.
5. Too many eggs in one basket
If you’re going to invest to maximise your savings potential, do it over many products or stocks. You should never trust your whole financial future on the growth of one stock or bond, or one savings account. Stocks can crash, banks can collapse and you need to diversify to protect your cash.
6. Thinking only of the short term
It’s good to have goals, but with savings these should be long term. If you're saving for a car, or for a holiday or something short term, that’s great but it does nothing to secure your future if that is the end goal of your whole savings plan. Saving for ‘things’ should only ever be part of your plan and not the be all and end all. Savings have more of an impact over the long term, so if your goals are short and repetitive you will always only ever have periods of small impact, benefiting little from the advantages of cumulative or compounding interest. Have a long term goal and see the real benefits.
7. Saving whatever is left at the end of the month
This is something that many people fall foul of. If you save only what you have left at the end of the month, you are seriously limiting the amount that you put aside. If you save at the beginning of the month, you can put aside a greater value, and limit your squandering and frittering with minimal impact through the month. If you save at the end of your financial month however, you will already have squandered and wasted a portion of your expendable income, leaving less to put aside in savings. It’s natural, if we have we tend to spend. Put it aside at the start of the month and you won’t miss it.
8. Not building an emergency fund whilst saving in a no-access account
There are two types of savings you should have. Savings that are there when you need them, and savings for your future. It’s all very well to put your savings into a no-access account because it has a bumper interest rate, but what good is that if you smash the car and need to pay a hefty bill in an emergency. You need to have an emergency fund first, and this needs to be replenished when used. Only when you have a comfortable emergency fund should you start tucking savings away in high interest accounts.
If you’ve not already started saving then you should seriously consider it as soon as possible. You don’t need to put much aside each week or month to start, and very often an emergency fund can prevent you from needing credit when trouble hits. It’s amazing how much you can put aside over time with very little sacrifice and it never hurts to be prepared when times are good for when times are not so great.
