Sticking so much money into your savings account will not help if it quickly comes right back out. There are reasons why it’s hard for us to save money. In reality, saving money is easy, but it is much more difficult to keep money saved in our accounts. Often, we need to cut our expenses in one area, but we could end up spending more in other areas. Here are reasons why we often fail when saving money:
1. It’s not an automated process: We can’t rely on willpower. It is important to set up a process for automatic transfers. It’s less likely that we will miss the money, if it is automatically whisked from our paycheck. Money can be transferred to our retirement fund or savings accounts.
2. We don’t hide it: If excess money is out of sight, it is also out of our mind. We shouldn’t be regularly reminded that we have the extra money. We should have a way to avoid seeing our savings balance each time we log on. As an example, savings accounts can be set up in a different bank. We need to arrange with the bank that monthly or annual statements shouldn’t be sent to our home.
3. We don’t have separate accounts: Having separate accounts can be a good way to avoid tapping money for inappropriate usages. Online banks often allow us to have multiple accounts at no costs. We may actually give name to each of the accounts, such as holiday, property taxes, new car fund, vacation and others. Dipping into nameless savings accounts is very easy to do, causing us to spend money excessively.
4. Our savings are unlocked: It is advisable to have at least $1000 that can be easily accessed for any kind of emergency purposes. Beyond that, we should create a real barrier to accessing our money. CoD or Certificates of Deposits is a good way for protecting our savings accounts. If we break into them too soon, we will incur some penalties. Penalties could be between 25 percent and 50 percent of any withdrawal.
5. Rewards are not saved: We should use cash back rewards for all our expenses and balance should be paid in full each month. Rewards can be transferred regularly to IRA or our savings accounts.
6. Excess money isn’t automatically diverted: This is related to automatic payment. Each time debt is paid off, service is disconnected and subscription is cancelled, we should divert monthly payment into our savings accounts.
7. Windfalls are immediately used: Windfalls can be defined as extra money that unexpectedly lands in our lap. They may include refunds, bonuses and rebates. If we want to reward ourselves, we may use up to 10 percent of the windfalls for anything we want.