Saving is a lifelong commitment to ensure financial security. It is an important, and perhaps one of the most basic components of your long-term financial strategy. Whether you are a new parent, or expecting the arrival of a second child, it is important for you to set aside savings for emergencies, so that you’ll have adequate resource to tackle the occasional hiccups in life.
However, most of us save absent-mindedly, without a clear direction or plan. Even though we do not need to be a financial expert to save, there are some costly savings mistakes that we can avoid to save ourselves from financial headaches in the long run.
Mistake #1 Not making savings a priority
One of the biggest mistakes most of us are guilty of committing is saving what is left after spending a month’s worth of salary on our family and ourselves. This is certainly not a good saving practice. It is based on the assumption that what is left of your income is sufficient to handle unforeseen events in life. Instead of leaving your savings to chance, a better approach is depositing a fixed portion of your salary into a savings account each month. This means that savings is budgeted for – similar to how we set aside money for our home mortgage or car loan. If you’re worried that you’ll pinch from savings to spend on a “want”, consider automatic payment to ensure that a fixed amount from your salary is channeled to your savings account.
Mistake #2 Tap into savings unnecessarily
Our savings is stashed aside for emergencies. So technically, it should not be used to fund big-ticket items like a pricey designer bag or an extravagant first-year birthday party – such expenses should be budgeted for separately. Essentially, it should not be a convenient outlet where you can dig deep to fund extra indulgences in life. Of course, this requires discipline.
Mistake #3 Not having an end goal
Goal-setting is important in saving. When we have an end goal in mind, we’re more motivated to work towards reaching it. Having a goal allows you to take measurable steps or plans to reach it – it becomes a way to chart your progress. The rule of thumb is to set aside six-month’s worth of your income as savings. But depending on your comfort level, and the number of dependents, you might want to tweak this figure appropriately. Bear in mind that your goals as a newly-wed change once you become a parent, and as you expand your family, you’ll find that your goals or needs shift as well. Having a clear goal or end result in mind, and continually accessing these goals is important to ensure that you stay on track. It will also be the driving force towards conscientious saving.
Mistake #4 Avoid using credit cards
The use of credit cards fosters instant gratification, fuelling the buy-now-pay-later sentiment that can hurt your pockets if you do not rein in on your buying impulses. But if you are like most parents or parents-to-be, who are prudent when it comes to spending, and do not accumulate credit card debts, then having a credit card or two does have its perks. On top of earning rebates from your purchases, you can even earn points for redemptions. Many money-savvy parents have a stash of credit cards that they can turn to for maximum benefits on certain purchases and at different retailers. Spending some time to understand these perks is useful. Every cent earned is another cent nearer towards realising your financial goals.
Mistake #5 Saving too much
Yes, too much savings can actually do more harm than good. Excessive savings prolong the time you’ll need to reach your financial aspirations. Instead of saving more money, consider investing the same amount of money to make the most out of what you have. Channel some of this money into worthwhile investments that are low-risk, but yet offer better returns as compared to a savings account. This is one practical way to make your money work for you.
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