Are you struggling to save money for your future? You're not alone.
For most people, focusing on saving for the future is a top priority. The road to financial freedom can be long and challenging, but it all starts with developing a great saving plan.
Unfortunately, along the way, many people make innocent mistakes that derail their savings goals without even realising it. Recently, I was thinking of ways to improve my saving culture and decided to observe my friends. I was able to learn a lot and, in the process, also observed some saving mistakes they were making.
One of the best ways to improve your saving habit is to learn from the mistakes of others. In this article, I'll share some of the mistakes I observed so you can avoid them and improve your savings culture.
Read Also: The 9 Most Important Reasons to Save Money
When Akinyi graduated and started working, she needed to open a bank account like most people. And so she did. At first, this is where she could receive her salary, and keep her money safe and accessible. But over time, that account also became her saving account, and now all her cash is in a current account.
Using your current account as your savings account has multiple drawbacks, including:
Njeri doesn’t have a budget and constantly has to dig into her savings to finance her bad habit - living beyond her means.
While Njeri has saving goals, she never meets them. For instance, she planned to save and buy a washing machine last year but ended up postponing the goal three times as she was behind her schedule.
Every time she tries to save, something else catches her eye, and she splurges and forgets her plan. Currently, she is well behind her most important savings: saving for a master's degree and retirement.
Njeri needs to change her money habits if she’s to meet her goals, and that should start by:
Wangari is 33 and has found relative stability in her career. She earns a gross salary of Ksh90,000 and currently has no dependents. On an average month, Wangari saves Ksh30,000, and over the past year, her savings have exponentially grown.
Wangari has a low-risk tolerance and values capital preservation. However, she falsely thinks saving money alone is enough. While she will accumulate a lot of money, prioritising savings and ignoring investing can be dangerous.
Some of those dangers include:
Mwangi is a 30-year-old teacher who makes Ksh65,000 per month. He struggles with saving money and often spends his entire salary on living expenses. This is because he considers saving an afterthought and only saves whatever is left over, which is usually not much. As a result, his savings are in shambles, and he often falls behind on his financial goals.
Mwangi needs to change his money attitude and prioritize savings to get back on track. He can do this by:
Read Also: What Does Paying Yourself First Really Mean?
Every month, Nasra saves 15% to 20% of her income. She has been doing this for years. She understands the importance of saving money and how it improves her financial well-being, from helping her stay debt free to building a cushion to fall back on in case of job loss.
But beyond those obvious reasons, Nasra has no other reason for saving. She doesn't have specified financial goals she's chasing, and whenever she needs to buy something, she simply digs into her savings.
While saving is good, a lack of saving goals can hurt your finances and prevent you from reaching your potential. If you are like Nasra and you don't have any specific goals you are chasing, it might be time to:
Read Also: 8 Financial Rules to Live By in 2023
A few years ago, Omondi realised he had a bad spending habit preventing him from growing his savings. Every time he could save money, something could come up, and he could drain his savings. To fix these problems, he decided to distance himself from his savings by making his money less accessible.
While this is a good approach, Omondi went overboard. He locked all his savings in illiquid accounts like fixed deposits and treasury bonds. He barely has any cash except the money used for daily expenses.
If faced with an emergency, he'll have to resort to liquidating his accounts and taking a loss or borrowing money. Both of these options can be costly.
So what can Omondi do?
Mutua, 25, is a recent graduate two years into his career. He earns Ksh70,000 per month but saves almost nothing. When I recently asked him why, he responded that he is too young to save and earning too little to save.
Mutua can barely save, not because he's underearning but because he has inflated his lifestyle and leaving beyond his means. Over half of his income goes towards paying off his HELB and car loan, and the other half he spends on living expenses.
If Mutua doesn't get his habit under control, it will likely spiral out of control and will probably come to haunt him in the future. For instance, he will have a hard time playing catch up to his savings goals as he'd have missed out on all the benefits of starting to save and invest in his 20s.
To get back in control of his finances and avoid future disasters, Mutua should:
Kipchoge is an accountant and earns a Ksh75,000 gross salary. Every month, 3% of his salary is deducted from his payslip and sent to his NSSF account. When it comes to retirement savings, this is the only account Kipchoge has. He thinks the NSSF deductions on his payslip are enough when it comes to saving for retirement.
But he might be wrong. Given how quickly the cost of living is increasing and the fact that people are living longer, the payments Mutua will receive from NSSF when he retires might not be enough to support him when he retires. Therefore, he needs to: