Ever feel like you scrimp and cut back, but you just can’t build your savings? Here’s why.
Whether you’re saving up for the downpayment on a home, or just trying to build your nest egg, reaching your goal will be so much more difficult until you confront these five ways you are sabotaging your savings. Even if you’re not saving for a big event, sabotaging your savings can have long-term, devastating effects.
Earlier this year, a study by the Federal Reserve revealed that nearly half of Americans wouldn’t be able to come up with even $400 in an emergency. That’s not people trying to buy a home or go on a vacation — it’s who wouldn’t be able to afford car repairs, an emergency room visit, or service call to repair a broken appliance.
In other words, nearly half of the U.S. population is one paycheck away from homelessness. If that includes you, chances are you’re already working very hard to save money however you can. Maybe you clip coupons. Maybe you eat meatless on Mondays. Maybe you skip using the AC in the summer, bundle up rather than pay for heat in the winter, watch every drop of water you use, or do any of the other supposedly clever things to save a penny here and there. And chances are it’s not working. Here’s why.
5 Ways You Are Sabotaging Your Savings
1. You aren’t automating them.
One longstanding piece of financial advice that many people misunderstand is the tip to “pay yourself first.” Many people assume this means setting aside funds for clothing, entertainment, and other discretionary expenses. It doesn’t mean that at all! Paying yourself first means paying your future self: the one who’ll be standing in the kitchen watching the dishwasher dump gallons of water on the floor, the one who’ll be stuck on the side of the road with a broken transmission, the one who’ll lose sleep wondering how to pay for such things without any funds in the bank.
Solution: The easiest and fastest way to start saving money is by taking (present) you out of the process. Don’t even let (present) you see that money in the bank! Set up an automatic transfer of 15-20 percent into savings from every paycheck, preferably in an account you don’t even see when you log on to your bank’s website. Many banks allow you to “hide” accounts from your login screen so (present) you is free from the temptation to dip into the savings account that (future) you has built up.
2. You get sidetracked by sales.
There was a comedian (I wish I could remember his name) who talked about his wife coming home with things from the store that she got on sale, even though they were trying to save money. Her rationalization: “We were going to buy it some day, but it was on sale today. I saved us money!” Of course, the audience laughed at his wife’s irrational thinking, and yet so many of us do the exact same thing.
Sure, saving money on something you need is a great feeling, but notice the operative phrase there: something you need. Not something you might need, not something you’d been thinking about buying, and not something that you don’t really have a use for today BUT if you do, well, you got it at a great price. Buying such things is NOT saving money, no matter how hard you try to justify it.
Solution: Toss the sales flyers. Ignore the ads. Don’t look at sales until you absolutely must buy something. Then, by all means, comparison shop and use coupons or online codes to get the best deal. Better yet, buy used! But, until you’ve reached your savings goal or built up an emergency fund, realize that every penny (present) you spend today is taking money from (future) you, and you are sabotaging your savings.
3. You upgrade or replace rather than repair or make do.
Things break: that’s a frustrating fact of life, especially when you’re trying to save money. But you sabotage your savings when you use such an occasion as an excuse to upgrade or replace things. Say you crack the screen on your phone then find out you’re eligible for an upgrade so you go with that. You wind up paying $250 (and having your overpriced contract automatically renewed), rather than $99 to repair your old phone. Sure, your new phone is lighter… but so is your wallet.
Solution: Always check out the cost of repairs before replacing an item, even if there’s a “new and improved” version available. But before you pay to repair an item, try living without it altogether for a while. Sure, you probably can’t go without a working phone, but do you really need a dishwasher right now? Do you absolutely have to replace your broken lawnmower, or would your neighbor be willing to let you borrow theirs once a week in exchange for you paying for the fuel and chipping in on blade sharpening? Don’t sabotage your savings by replacing things you could live without or inexpensively repair, and postpone upgrades until you’ve met your savings goal.
4. You think your time is more valuable than it is.
The hours away from work are known as “free time” but so many of us believe that means they should be free of anything that feels like work, especially anything that feels like a chore. In this category, we often lump activities that can save us a significant amount of money but which are not nearly as fun as, say, binge-watching Netflix or playing games on Facebook.
Sure, hanging laundry on the line to dry takes a few minutes longer than merely tossing it in the dryer, but it saves close to $10 per hour (plus the cost of dryer sheets). Clipping coupons may seem like a tedious way to spend 15 minutes but it’s a fantastic way to save $15-30, and that’s the same as making $15-30 per hour.
Solution: Start viewing your “free time” away from work (including the work of raising kids) as time that could be spent saving and/or making money. Fire the lawn service, dust off your mower, and mow your own lawn. Skip the $12 car wash and wash your vehicle at home. (Just don’t leave the water running.) Do the same with the house cleaning service you’ve got coming every week. Hang that laundry. Clip those coupons. Make meals from scratch. Every “chore” you do for yourself is money that you aren’t unnecessarily spending. Do enough of them and you might be able to ditch that expensive gym membership, too!
5. You think being frugal is embarrassing.
In a land like the United States, with its reputation for abundance and large-living on the one hand and its claimed belief that hard work pays off on the other, being frugal can lead to a lot of false assumptions. It can be awkward to tell a group of friends that we can’t afford to join them for a dinner out, a night of clubbing, or even for an afternoon at the movies with all of our kids.
It’s even harder if your parents had a complicated relationship with money that led you to feel deprived or, on the other extreme, to feeling entitled to a certain standard of living.
Solution: Stop equating frugality for the purpose of building your savings with being broke. Every penny you save, whether by cutting back or eliminating discretionary expenses, is an investment in your future and your peace of mind. Rather than saying “I can’t afford to go there/do that right now” tell others — and yourself — that “I’m not spending money on those activities/things right now.” By transforming your attitude from one of deprivation to one of deferred prosperity you’ll eliminate the embarrassment and just might find your friends admire you for it. Who knows, maybe you’ll even inspire them to start saving more, too.
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