If you are like most people, you have a lot of very good and very well-intended ideas about maximizing your savings and building up an emergency fund for 2018. However, you may also find that at the end of the month there never seems to be any extra money to add to the account.
The reasons this happens will vary from individual to individual and situation to situation. With that being said, there are a few common mistakes that people make to undermine their efforts at building their savings.
- Not prioritizing savings – The best way to ensure you make your monthly deposit to your savings account is to take it off the top rather than at the end of the month. If you have automatic deposit, set up an automatic recurring draft from your checking account to a savings account on the day of the direct deposit.
- No budget – The biggest factor for saving is having a budget. This means allocating, based on a realistic amount, how much you need to have every month for your needs (bills, loans, payments, etc.) and also for your wants (entertainment, dinners out, etc.). Once you know these amounts, you can set a realistic savings goal.
- Rationalizing – Many people are very good at rationalizing why a "want" suddenly turns into a "need" even if they have a budget. It is important to be able to tell yourself “no” or to wait until you can budget for the item.
- Buying on sale on credit – If you are buying items on sale to save money and then putting the purchase on a credit card that you will take months to pay off, you are not really saving. There is nothing wrong with buying necessary items on sale, but you should only make the purchase if you can also pay the card off and not carry that high interest forward for months.
- Not using programs – If your employer offers a retirement savings program in the form of matching funds, it is worth using this option rather than doing it on your own. While it will lock up the funds, it may also double your savings, something you will not achieve with any type of saving accounts anywhere else.
Take the time to consider your options. A simple and easy to follow budget and savings plan is still the most effective option to build your savings account.