The average net savings for a Canadian household is $852. With inflation being so high, taking care of your savings is more important than ever. You never know what life may throw your way.
You may be able to get away with a poor financial mindset when you’re younger. The same can’t be true when you’re an adult. These learned behaviors can cost a lot leaving you feeling overwhelmed, scared, and stressed.
While each Candian’s situation is specific, there are common savings mistakes. In this guide, we’ll cover just that. Keep reading so you’ll know your blindspots and what you can do about them.
1. Overestimating How Much You Can Save
Becoming enthusiastic about your money-saving strategy can be a good thing. The key is to stay committed to setting aside money consistently.
This could backfire if you are trying to save too aggressively, though.
When you’re first starting, you don’t want to allot too high of an amount. This is setting the bar too high. You’ll know you’re in a poor scenario when you’re dipping back into your savings to pay for monthly bills.
Take a look at your income and create a safe percentage of that. Once your bills are paid, and all of your necessary expenses are covered, consider this a safe starting point.
2. Assuming Your Bank Offers the Best Rate
Staying motivated is easy when you’re earning interest. You want to do your best to keep your eyes and ears open for other savings rates too.
Make sure you’re getting the highest yield possible in your savings account. You’ll be amazed at how much you could earn over a long period.
To put it in perspective, let’s say you open a savings account with $1,000 and will deposit $200 each month automatically. Savings Account X offers 0.02% APY, and Savings account Y offers 0.75% APY.
Over 20 years, Savings Account X would yield $99.73, whereas Savings Account Y would yield $3,931.32.
We recommend looking at online banks since they’ll have lower overhead costs.
3. Paying Bank Fees
You never want to be paying more in bank fees than you are earning in interest. This will only detract from your automatic savings efforts.
Bank fees you’ll want to be aware of and avoid are monthly maintenance fees and minimum balance fees. You may also get hit with withdrawal fees if you go over the limit. These can add up over time if you’re not careful from the get-go.
Your checking account may even get hit with an overdraft fee if you are too aggressive in your savings approach.
Avoid these common savings mistakes, and be sure to read the fine print before opening an account. Do your research and due diligence, and compare banks. Many online banks will help you save by waiving or refunding these excess withdrawal fees.
4. Thinking Automatic Saving Is Hard
You don’t want to fall into the trap of thinking that saving money is hard. The more you can take emotion out of the financial equation, the better off you’ll be.
For example, you may glance at your money and your spending and turn a blind eye. You may also feel financially overwhelmed and give up. Don’t let this be you!
You may have learned poor financial skills as a child that crept into adult life. You can learn the habit of budgeting and create a better relationship with money.
These days, apps make your finances a breeze. Certain apps will let you set your “rules” so that money is automatically transferred into your savings. For example, you could set up a rule that each time you get a coffee from your favorite coffee shop, 10% will be deposited into your savings.
Little by little, you’ll see the money adding up fast. You want rules that will match your lifestyle that leave you feeling in control.
Pay attention to other money-saving strategies these apps provide such as cashback or round-up features. All of these benefits will add up over time and will help to remove mental roadblocks and make the process of saving money fun and painless!
5. Failing to Begin
It’s never too late to start saving!
We recommend the 50-30-20 approach. When you get your paycheck, you want to put 50% towards bills and necessities, 30% towards “wants”, and 20% towards investment.
We like this money-saving strategy for its simplicity as it doesn’t require any advanced math skills. You’ll be saving money in no time with this approach!
6. Saving as an Afterthought
To make progress on your savings, you want to keep it in the forefront of your mind. When you only think of savings after you’ve done all your spending for the month, you’ll be making one of the most common savings mistakes.
With that approach, it’ll be difficult to stay consistent. The best way to remedy this approach is to think of your savings as a mandatory monthly expense (like a bill).
Take advantage of today’s technology by setting up a recurring monthly transfer. Start small and try to only spend the remaining amount.
7. Keeping Your Savings in One Account
Keeping your savings in one account is one of the most common savings mistakes you can make. Odds are you have many goals for savings. If all your money is flowing into one account, tracking each goal becomes that much more difficult.
When you withdraw money from your savings account, you may be making the mistake of spending money from one of your goals.
It’s easy to break down your goals for savings into smaller buckets. Opening a savings account is easy—just to be sure to open one that won’t charge you a fee.
Now you’ll be able to allocate and identify your goals.
8. Using a Low-Yield Savings Account
Storing money in a low-yield savings account won’t do you any good. By parking your money there, the money’s value will only depreciate over time.
The solution is simple—do the opposite. Find a high-yield savings account where your money will grow with interest.
9. Saving Too Much and Investing Too Little
Another one of those common savings mistakes you’ll want to avoid is leaving too much cash in your checking and savings accounts. Having 3-6 months of an emergency fund in a high-yield savings account is a good start.
The rest of your money should be invested. This will help your money grow organically and simultaneously works against inflation.
You want to begin thinking more long-term as you develop a rock-solid money-saving strategy.
10. Saving While Living on Borrowed Money
Examples of borrowed money include credit credits, loans, and overdrafts. You don’t want to have to rely on these to pay bills.
Spending what you don’t have or own is a recipe for disaster. This will only increase your debts, no matter how much you put into your savings accounts. This could easily get out of hand, and your debts could accumulate to more than what you have in savings.
Creating a weekly or monthly budget is a more reliable way to keep track of your money and where it’s going. You can curb poor behavior like excessive spending. You’ll raise your awareness of where you can cut areas out and focus on more productive goals for your savings.
11. Having Inaccessible Savings
One of the more common savings mistakes you can make is being penalized when you withdraw money. This is no good because you don’t want to be penalized in the event of an emergency.
We recommend having at least 3-6 months of savings in a standard savings account.
12. Buying Low-Cost Items to Save More
Some people believe that paying for low-cost items is the way to go. They believe it’s a way to save money when in actuality, it has the opposite effect.
One of the best-kept secrets when it comes to a money-saving strategy is buying the best bargain.
For example, if you buy inexpensive tools, they may only last you a year or two. If you bought better quality tools, they would last you a lifetime, and you’ll end up saving more money in the long run.
When it comes to your health, don’t cut costs either. This means buying produce, leafy greens, etc., and avoiding processed foods that won’t provide many nutrients.
Avoid These Common Savings Mistakes
When you can avoid these common savings mistakes, you’ll be well on your way to a more lucrative path. Don’t be afraid to take baby steps in your financial journey.
As you learn the basics, you can level up so that your money will work in your favor and on your terms. Don’t forget who is in control here.
The good news is you’re not alone on your journey. Our team at 24Cash will help you take the next step. Be sure to explore our loans and submit a request for one today.