4 Mistakes Preventing You from Saving Money

Updated Aug. 19, 2021, 2:31 p.m.

In this article you will find out why people have a difficult time saving money and how to change perspective about your spending habits.


We all know that having a savings is important for many short term goals such as going on vacations, purchasing a new phone, or even just having some cash for a rainy day. Saving money is also essential for long term goals like placing a down payment on a house or car, planning for retirement, or for paying for your child’s tuition once they go to college. While all this should be common knowledge, in practice many of us fail to be financially prepared for the future and some simply don’t know how to save.


It may come as a surprise that about 70% of Americans have less than $1000 in savings, and 45% of Americans have zero dollars in savings, according to a 2019 survey done by Statista. That’s nearly half of the population who are just one missing paycheck away from going bankrupt. It seems like everyone has the newest tech or something to show off, yet the truth is that most people are secretly living paycheck to paycheck. If you fall within this group, you are not alone and it’s possible to overcome your financial hardships. 


You might have borrowed too much for college tuition, or purchased too many unnecessary things to impress others. The good news is that by reading, you are figuring things out now. Hopefully this means that the mistakes are out of the way early in life and will not continue towards the future. It is never too late to save, so here are a few common mistakes that make saving difficult.

Ignoring your finances

Knowing the truth and facing your financial problems can be scary. It's easier to neglect our finances, continue life as it is, and worry about it all later. But we should already know that it would be far less painful to confront your situation sooner rather than later.


If you are having financial trouble, it is important to know exactly where your money is going. Sit down and spend the time to get the big picture of your situation. Compare your debt versus your income. You may find that your net worth could be largely negative, but having awareness could prevent you from digging yourself into a deeper hole. Make a plan to change direction and correct these problems so that each day will become better than the last.

Spending more than you need to

It’s possible that some people who have established good money habits might not earn enough to live comfortably and could still run into financial trouble. Life happens and an unexpected emergency might trigger recurring debt problems, before they have had a chance to prepare for such an event. The best solution for them could simply be a salary increase to cover their expenses and fix their debt, but this is not usually the case for most people. 


Oftentimes financial issues arise from too much spending, rather than from having too little income. The truth is that most of us have greater control over our spending than we realize. We are too focused on blaming our problems on income when we can immediately impact our savings with relative ease by concentrating on our spending. 


Spending can be divided into two categories, which we can call needs and wants. Needs are purchases absolutely necessary for our survival in society such as basic living expenses. We can only reduce our necessary spending, but this may require us to make sacrifices. Wants are our discretionary spending, which are often items of luxury or purchases for entertainment. When trying to accumulate savings, one should first focus on minimizing discretionary spending wherever possible. These expenditures are the result of our personal choices so this area is the easiest to target.


One common issue is that some borrow a luxury lifestyle. Taking out a loan to be able to afford things like a new car or needing installment plans for high end tech items is normalized in our society. We see it all around us and believe we should keep up with everyone else. Consumerism culture is causing us to “spend money we don’t have, to buy things we don’t need, to impress people we don’t know”.  


Some people could justify their spending with familiar reasoning like, “it's only a few hundred dollars a month”, or “might as well upgrade the package for a little more”. We convince ourselves that the more expensive option will last longer so it's a better choice because we wouldn’t need much maintenance or repairs.


These purchases are rationalized the more we think about the gratification from having luxury items and impressing others. The gratification fades away because this happiness is not sustainable and we repeat the cycle. Remind yourself that success is not measured by the amount of expensive things you own. 


When thinking about making a purchase, have a mental checklist by asking yourself a few questions. Do you need the high end product or can you manage just fine with the basic version? If you need to take out a loan or put it on a credit card, then can you actually afford it? If you are making the purchase to impress others, is it really meant for you? If you can get by for a year without it, then do you need it? 


The major factor in determining your wealth is how you spend the money you earn. Many of us direct too much towards discretionary spending, and some borrow money or lease items to afford what they desire. These are habits you are in full control of changing that can immediately improve your wealth. As you’ll soon see, we should focus on having a savings mindset, because increasing your income isn’t always the solution to financial issues.

Lifestyle inflation

The problem with focusing only on increasing income and not cutting spending is that the bad money habits follow you. No matter how much you make, you could still end up spending it all.


Some people who obtain a higher income unwittingly inflate their lifestyle by diverting their newfound money towards items they don’t usually need. This often goes unnoticed because old luxuries become newly perceived necessities when desired items become relatively more affordable. 


There are people with incomes over six figures who are spending more of their earnings to live a lavish lifestyle, only to end up with nothing in their savings. Then there are some people who have only a median income and are wealthy, because they save nearly half of their paycheck and grow their money through investments. It's a matter of breaking out of the spending mindset that is ingrained within us, which is easier said than done. 


We may justify this habit of overspending as “living life to the fullest” because we do deserve to reward ourselves with nice things sometimes, but we need to be careful that it doesn’t happen all the time. There are areas where we can spend on ourselves while still attaining financial freedom. Keep in mind that to avoid financial ruin we must have our income equal to our expenses. But to develop a savings, our spending should be below our income.


As a result, some general advice is that you should aim to live below your means and to pay attention to your spending habits. By sticking with this rule a savings will grow, slowly but surely.

Not planning ahead 

Not enough people are financially prepared for the future because they are too often caught up in their busy lives and living in the moment. 


Take care of your future self when you are more able by providing an income through a retirement plan. Your retirement years are just as important as the present, but too often planning is delayed and this setback becomes a burden later. Get started early for retirement planning as time has a huge impact on your fortune. It's a marathon not a sprint, and to expedite saving later in life can be very stressful. 


We can expect the unexpected with an emergency fund. Despite thinking you have job security, your income may not actually be guaranteed. So plan ahead by having an income for 6 months as a safety net, and it will help pay for any unforeseen circumstances too. The biggest benefit is the peace of mind when you are on top of your finances. 


You don’t have to be a financial genius to be smart with your money. It takes careful planning for managing your finances, and identifying the source of your money mistakes.


In the next article we will discuss some general tips that may help to reduce discretionary spending.

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