Quote of the Week: 'It is never too early to encourage long-term savings.' - Ron Lewis.
Arguably, every adult understands the value of saving and nobody can complain about having a few extra shillings set aside for the proverbial rainy day.
However, in our quest to save more, we might make a few mistakes along the way. Some of these mistakes may not be fatal but they affect how much we will have saved. A few might result in serious setbacks where you lose everything you have worked hard to build. This week, we look at how you can avoid such mistakes and maximize your savings.
1. Avoid Get-Rich-Quick Schemes
Let’s start with the most financially damaging mistake; getting yourself in a get rich quick scheme. Here is the thing about such schemes; they are almost always scams. When it comes to saving and investing, you will not make an extraordinary return within a short period of time, it doesn’t work that way, and is usually the bait, be extra careful when someone promises to double or triple your money within a very short period of time.
In finance, the higher the return the higher the risk. A good savings plan should have minimum risk. If you want a high return, you ought to invest the money in risky ventures.
2. Saving and Not Earning Competitive Interest
If your savings are not earning interest higher than the rate of inflation, you are losing value. Inflation eats up the real value of money over time if it is higher than the rate of interest you are earning. You ought to save in an interest earning savings plan that pays a competitive rate of interest to compensate for inflation. If the interest is compounded over time, the better. Always go for a savings plan whose interest rate exceeds the inflation rate.
3. Not Factoring in Costs
Costs charged in some savings products can eat into your returns, sometimes significantly. Before signing up to any savings product, ask about the fees, taxes, penalties, transaction costs and other charges.
It is important to know the net rate you will earn after all the costs are deducted.
4. Saving Without a Goal
You shouldn’t save without a goal. A goal gives you a purpose, and drive and motivation, the lack of which makes people to stop saving.
Saving with a goal also gives you a target and a reward. When you are just saving, it might seem like a futile exercise after some time. You might even wonder, “why am I doing this? What do I get after this?” That is not the case when you are saving for a specific goal. In such cases you might look back with pride and say, “I saved and bought this car. I don’t have a debt as a result.”
Conclusion: Saving is a rewarding habit if you do it right. However, a few mistakes can make you feel like it is the most overrated activity one can engage in. We hope that these tips will help you maximize your savings and build a habit that sets you up for financial well being.