Signs You’re Saving the Wrong Way

Everyone needs to save money. There are no debates about that statement. However, there are right and wrong ways to go about saving money. Some people think of saving as buying things when they are on sale while others put their money into investments and savings funds. How do you know if you are saving the wrong way? Here are a few things to keep in mind:

You’re not tracking your spending

If you are not tracking your spending (daily, weekly, monthly) you are not saving correctly. In order to build up your savings and better your financial health, you have to keep track of what you spend. For instance, if you spent $100 on new clothes but did not budget for it you are spending money that you could be saving instead. If you don’t keep track of what is coming in and what’s going out you won’t be fully aware of your cash flow. This can cause overspending and under-saving. If you aren’t tracking your spending, you are going about saving the wrong way.

You have a non-existent budget

Budgeting ties in with the last point a bit. In order to draw up a successful budget you will have to track your spending. Budgeting can be difficult but it is a necessary evil if you are seeking to be financially stable. You can use budgeting tools and apps to help make it a bit easier. Personally, I think that Intuit’s Mint app is one of the easiest to use and most effective free budgeting tools. I’ve used it for a little over a year now and it has greatly helped me stick to my budget.

Buying things because they are on sale

When you see a good sale you may think “I would save so much money if I bought that right now.” However, you don’t always need those items and are wasting money buying them. If you are a person that chases sales, stop. It isn’t helping you save money. You may be “saving” money on your purchase but in reality you are spending money that you wouldn’t normally be spending. Shop sales for things that you need. For example, before I go grocery shopping I flip through the local ads and make a list for each store based on the sales at each location. I was already buying groceries so if I can shop a sale and save money, I will. This is different from randomly shopping a sale for clothing you didn’t need or didn’t plan to spend money on in the first place.

You don’t have any investments

Investments are a huge part of saving money. Keeping your money in a saving account is a good thing, however, investing is even better than simply saving. Investing can be a great secondary stream of income and will help you accumulate wealth over time. When my sister and I were born my grandfather opened up stock market accounts for us both which we gained access to when we turned 18. We had the opportunity to cash it in or continue the investment when we turned 18. I chose to continue the investment and I have kept it as a retirement savings. Some people also use their investments as a safety net or emergency savings.

You don’t have an emergency savings account

If you don’t have an emergency savings account, you should. Two-thirds of Americans don’t have enough money saved to cover a $1,000 emergency. This is a startling fact. Whether your emergency savings is in a separate savings account or you have the money put away in an investment account, you should always have money set aside for the unexpected. You never know when your car may break down or an unexpected medical expense may arise.

Are you practicing any of these bad savings habits? 

Photo: Flickr: alamosbasement