Believe it or not, there are mistakes that people can make while saving money. We will look at a few to help you avoid these pitfalls.
You’ve created a budget and are disciplined about putting money in your savings account each month. It seems like you are on auto-pilot to achieving your savings goals. However, it is possible to make some mistakes that can set you back when a shaky economy rolls around.
We live in an ever-changing world where prices of goods, such as food and gas for our cars, can change and derail an otherwise effective savings strategy. When changes beyond our control take place, such as price increases due to a natural disaster, people try and save money however they can. But, in their effort to save, some people make mistakes. Read on so that you are one of the savvy individuals who knows how to avoid these mistakes.
Cut All Spending
It would seem to make sense that if your finances suddenly become constrained you should cut all spending and, thus, you would save money. This logic works to a point. You should cut nonessential spending such as eating out, going to the movies or installing a new sound systems for your car. However, you should continue to spend on items or services that can save you more money in the future.
These preventative expenditures include such things as going to the doctor, maintaining your vehicle or addressing critical repairs to your home. You might think you are saving money by skipping a few oil changes for your car, but when your engine fails that will be a much larger expense.
Advice: Continue to make purchases that will prevent larger expenses in the future. Cut from nonessential wants.
Buying as Cheap as Possible
There is nothing wrong with bargain hunting, so long as you are getting a good bargain. When times are tough people tend to buy cheaper items as a natural reflex. The logic here is that buying cheaper will save money. As in #1, this depends on what you are buying.
Can you switch from Cheerios to Generic Grain Circles and save some money? Probably. However, when it comes to items that you are planning on using for a while, going cheap may not be the best bet. For example, if you work in construction your gloves and boots may be very important to you. When you go to purchase new gloves or boots you should shop for quality products. For starters, these are designed to protect you from dangers at your work. Second, the high-quality items should last longer as opposed to the cheaper versions. If I have the option to buy a pair of gloves that will last me six months and cost $40 or, buy a pair that will last 2 months and cost $15, I’m better off buying the more expensive pair. In the same six months, I will need to buy 3 pairs of the cheaper gloves, bringing my overall cost to $45 + tax.
Advice: Buy cheap when you can, but consider what the item you are purchasing will be used for. If it is something you need to use for a long time or is critical to your work, consider a longer lasting and possibly more expensive item.
Rare is the situation where ignoring something will make it better. I urge you not to use the ostrich strategy of sticking your head in the sand and hoping whatever is happening will pass you by. To effectively save money you must realize there is a need to save and make a conscious effort to do so. This means making a budget and deciding where you can cut spending. This won’t be easy and it will require some sacrifice, but it is better to address a problem while it is still early rather than let it balloon into a much larger issue.
Advice: Create a budget. If you already have one, go back and make some revisions. Figuring out where to cut spending is only part of the solution. If you are in a tight spot, explore ways to earn some extra income. For a few ideas, check out our article on working side hustles.
It doesn’t seem very fun to have a list of “things not to do” piled into one post. So, below I’ve listed a few things you should do when the times get tough and you need to watch your spending.
Do Monitor Your Health
It’s important to stay healthy and when you are under stress, you are more susceptible to falling ill or injuring yourself. Pay attention to the foods you eat and your exercise. This could be a blessing in disguise if you are accustomed to eating out a lot. Cooking at home more often will not only be healthier, it will also save money!
Invest if You Can
When your finances are tight the last thing you are probably thinking about is entering the stock market. Most people would admit that 2008 was a rather rough time. The markets were in poor health, the unemployment rate was increasing and people were hesitant, at best, of putting their money in an investment account. If we look at the chart to the right, however, we would see that those people who braved the market in 2008 were well rewarded the following year.
I am not advocating that people can time, or “beat”, the market. Just because the markets are in a downturn doesn’t mean you should invest. You must still conduct proper research before deciding to risk your money. If you are willing and able to risk some capital, you may be pleasantly surprised by the returns you generate.
I’ve mentioned cutting unnecessary spending a few times already, so this seems odd that I’m now advocating relaxing. Adding to your stress level by not allowing yourself to unwind will only hurt you and possibly those around you. Take some time and find new ways to relax and have fun. Enjoying the outdoors can be a great time and is not very expensive. If you are a movie buff, maybe waiting until a movie comes out on Redbox rather than seeing it in the theater can still get you your fix. There are ways to have fun and relax without breaking the bank. Get creative and you might even discover a new hobby!
We’ve discussed a few things not to do and a few things we should do when we have an unexpected and uncontrolled change in the economy. Think of the economy as a wave, it goes up and it goes down. Enjoy the ride up and prepare for the inevitable ride down and keep the above points in mind throughout the entire experience.
Share your thoughts in the comments below. Do you have any helpful tips about managing spending when unexpected events occur? Also, if you found this post useful please share with your friends and family.