7 Solutions to Common Savings Mistakes

January 4, 2019February 6, 2019 thawngno

Use savings strategies to save you from major money mistakes.

Americans are making money mistakes that are costing them big time, according to a new survey by PurePoint® Financial. More than 40 percent of those surveyed said they’re interested in saving, but they’re not sure where to start. But it doesn’t have to be that way for you. With the right knowledge and tools, anyone can optimize their finances for short- and long-term gains.

“Our hope is that the learnings from our research serve as an inspiring wake-up call to the majority of Americans who could make more on their hard-earned money,” said Pierre Habis, President of PurePoint Financial.

Find out the seven most detrimental money mistakes Americans make and what you should do instead to avoid throwing money away.

Mistake No. 1: They’re Missing Out on Free Money

The first step to growing your savings is understanding how your savings account really works. Unfortunately, 65 percent of Americans don’t realize that interest rates impact savings, according to the survey. Of those surveyed who have a savings account, 52 percent do not know their APY.

By not taking advantage of the best interest rate available, many are leaving free money on the table. Click to the next slide to find a solution to a problem that all too many people are facing.

Solution: Open a High-Yield Savings Account

PurePoint recommends that consumers review their bank statements and verify they are earning at least 1.00% APY on their savings deposits. If not, it’s time to shop around to maximize interest potential. Interest rates for savings accounts at most traditional banks are hovering at 0.09% APY, according to the FDIC. PurePoint Financial currently offers a PurePoint Savings Account rate of 2.35% APY — significantly more than what even many online banks offer.

When considering opening a savings account, look at the yield — the higher the number is, the more money you can earn. Also, find out if interest is compounded daily, monthly, quarterly or annually. Money grows faster when it compounds more frequently.

Mistake No. 2: They Don’t Know How to Save for the Short Term

More than four in 10 Americans said they want to save but do not know where to start, according to the PurePoint survey. Additionally, almost half do not have a savings target set for the next one to five years.

Part of the reason Americans might not be saving is due to credit card use. Using a credit card provides instant gratification — you can instantly buy whatever it is you want, but it comes at the cost of interest, fees and debt. On the other hand, setting savings goals before you make a purchase is a process that takes time and self-control. The ease of purchasing things with a credit card instantaneously can be more appealing, however, credit cards can hurt you in the long run. But if you’re willing, there’s a solution.

Solution: Figure Out How Much You Can Save

A good starting point for setting savings goals, according to PurePoint, is 10 percent of your annual income. To get started, calculate what 10 percent of your annual salary is to determine if saving that much is a realistic goal. For example, if you make $48,000 per year, you would need to save $4,800 per year or $400 per month to meet a 10 percent annual savings goal.

If you can’t find the money in your budget for savings, look at your expenses and cut those that are non-essential, such as those dedicated to entertainment, dining out and luxury items. Going forward, actively seek out ways to increase the amount you can save each month. Then, use your savings to fund the larger purchases you’ve had your eye on. Paying in full will save you money and help you feel more financially stable.

Mistake No. 3: They Don’t Pay Themselves First

According to the PurePoint survey, over half of Americans don’t make automatic savings deposits each month. It can be difficult to think about paying yourself first when you have bills to pay. After all, it’s critical to meet your financial obligations, but actively saving is also important.

Many might think saving is for retirement, but setting money aside each month serves other purposes, according to PurePoint: Consumers’ lives are full of milestones that aren’t just focused on retirement, and it’s important to have a savings plan for other big purchases and important life events to avoid going into debt.

Solution: Set Up Automatic Drafts to Savings

PurePoint Financial recommends that people pay themselves first when sitting down to pay bills every month. Make a goal of setting aside a certain amount every month. For example, a nominal savings of $100 a month, will save you $1,200 at the end of the year, which doesn’t include any interest you might earn. To make it easier to save, arrange to have money from your paychecks automatically deposited directly into your savings account. With this set-and-forget method, the money is saved automatically before you even consider spending it.

Mistake No. 4: They Would Rather Go Into Debt Than Plan Ahead

The average American had a credit card balance of $6,354, up 2.7 percent from the year prior, according to Experian’s annual State of Credit study for 2017. Even so, many consumers would rather go into debt than save for a large purchase. The PurePoint research found that 34 percent of consumers believe it’s easier to charge large purchases to a credit card and deal with it later than to plan ahead by saving for the purchase.

It might feel easier to swipe your credit card in the moment, but that mentality doesn’t pay off in the long run. When you save money and it earns interest, your money starts making you more money. So not only will you have the money you saved to pay for your purchase, you’ll have extra. When you use a credit card to pay for a purchase, you also pay the creditor for your use of its money. The bottom line is that you lose money to interest and go into debt when you use a credit card irresponsibly.

Solution: Create Short-Term Savings Goals

Short-term savings goals, such as creating an emergency fund or saving for a down payment on a car, are typically goals you’d like to achieve in about three years or less. Once you know you how much money you have to work with, decide what you want to save for and set a short-term savings goal that includes both the amount you want to save and a target date for when you’ll reach the goal. If you want to reach the goal more quickly, find ways to increase your savings contributions, such as working a side job for extra cash, funneling a percentage of each raise or bonus to your savings and cutting back on non-essential spending.

Mistake No. 5: They Don’t Realize How Much a High-Yield Savings Account Can Earn

The survey also shed light on how little Americans know about the value of a high interest rate. When consumers were asked in the survey what everyday items they could purchase using accrued interest earned from a high-yield savings account, these were the results:

28% said the interest could buy an annual Amazon Prime subscription
26% said the interest could buy an annual Netflix subscription
27% said the interest could buy a pack of gum

If you have high-yield savings account with a rate of 2.35% APY with $10,000 in your account, you’d yield $235 in interest in a year, which could just about pay for an Amazon Prime subscription, a Netflix subscription and a pack of gum. If your rate is closer to the national average rate of 0.09% APY, your $10,000 deposit would yield only $9 in interest in a year.

If consumers don’t pay attention to interest rates, they won’t be motivated to make a positive change to grow their money.

Solution: Investigate High-Yield Savings Interest Rates

Shopping around for the most competitive interest rate on a high-yield savings account is the best strategy for learning how much money you can earn from your savings balance. PurePoint Financial promises to consistently deliver market-leading interest rates, as evidenced by their 2.35% APY PurePoint Savings Account rate, at the time of publishing this article. Purepoint Financial is able to offer such a competitive rate because it has streamlined its operations, and unlike a full-service, traditional bank, it focuses only on select products.

Annual Percentage Yields (APYs) accurate as of 1/4/19 are: 0.25% APY for balances of $0.01 – $9,999.99 and 2.35% APY for balances of $10,000 or more. Rates subject to change without notice.

Mistake No. 6: They Allow Their Savings Goals to Get Derailed

Another money mistake Americans make is allowing savings goals to go off-track. The PurePoint survey found that these were the reasons consumers, especially millennials, had trouble reaching their savings goals:

Impulse trips or vacations because friends were going
Impulse purchases due to seeing an ad online via social media
Impulse purchases of non-essential items at places like Target and Amazon

But you don’t need to live your life one impulse buy to the next — there are ways you can reel in your shopping temptations to reach your savings goals.

Solution: Set S.M.A.R.T. Savings Goals

It’s important for you to picture a savings goal, like a vacation or a large purchase, to motivate you to save more regularly and avoid impulsive splurges along the way, according to PurePoint Financial. To help, you can set S.M.A.R.T. savings goals — an acronym that stands for goals that are specific, measurable, accurate, realistic and timely. Here are some things you can do to help you stick to your S.M.A.R.T. goals:

Write down your goal, the amount you want to save and the date you want to reach your savings goal.
Put a picture of the thing you’re saving for — be it a beach vacation or a home — where you’ll see it every single day.
Write a paragraph about how it would feel to achieve your goal.
Write a paragraph about what it would feel like not to achieve your goal.
Take immediate action, even if it’s a very small step.
Share your goals with a friend who can hold you accountable.

By taking these steps, you’ll create an emotional connection to your goal, which will give you the motivation to stick with it.

Mistake No. 7: They Believe Their Checking and Savings Accounts Have the Same Rates

The PurePoint Financial survey found that the average American has almost $5,000 sitting in a checking account or digital wallet, and over half admit that they allow the money to sit there instead of transferring it to a savings account. This mentality is, in part, due to an additional survey question that found that 38 percent of Americans believe their checking account and savings account have the same interest rates.

Solution: Shop Around for the Best Interest Rates

To make the most of your savings you need to first maximize your interest. With many banks offering rates as low as the national average, it’s key you look for a bank that offers a higher rate — they’re out there, you just need to look. PurePoint Financial is currently much higher with a 2.35% APY. In addition, the PurePoint 6-Month CD rate of 2.20% APY is nearly seven times the national average rate of 0.34% APY, according to the FDIC, as of press time. Take the time to check your current interest rate and then shop around to compare rates at competing banks to find the best one for you.

Annual Percentage Yields (APYs) accurate as of 1/4/19. Rates subject to change without notice.

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This post was brought to you by PurePoint Financial, and originally appeared in the Go Banking Rates.

PurePoint Financial is a division of MUFG Union Bank, NA