2 Reasons People Are Not Saving Enough Money

by PT

I’d Like to Save More Money, Please

Everyone wants to save more money: whether for short-term needs and wants, a safety net, retirement, or for financial freedom. It’s hard to imagine a person who doesn’t want more money stashed away.

So, why are there so many people with so little savings? Can they really not afford it? I suppose there are some people who barely scrape by…and it’s understandable that some people would be unable to save given their situation. Still, I believe most Americans bring in enough income to be able to save some of their money. Can’t we all agree on that?

So, if we can save, then why aren’t we? Is it because we’re lazy? Unmotivated? Undisciplined?

I say…none of the above.

Here are two key reasons people aren’t saving enough money, even if they really want to:

1. They Aren’t Making Savings Automatic

This is my number one tip for saving more money. Not to try *really* hard, think positive, or wait till I make more. Those are failed mantras.

The best way to truly save more of your money is to setup a direct deposit from your paycheck directly into different savings accounts. One for retirement and another for short-term goals.

Don’t know how to do the direct deposit thing? Ask your company’s human resource representative. Want to know where to put your money? See my second point…

2. Their Savings is Too Easy to Access

Money in a savings account attached to your regular checking account is just begging to get raided. No one has enough discipline alone to keep their hands off of cash savings in a regular bank savings account. Well, maybe some do, but those people are few and far between. Most of us struggle with this.

Short-term savings should be kept in a High-Yield Online Savings Account or a Certificate of Deposit. Both of these products make your money harder to access, increasing the chances that you’ll leave it alone.

Long-term or retirement savings should be kept in a tax advantaged account like a 401k or and IRA. Both accounts come with big disadvantages for early withdrawal, more motivation to just leave your savings alone.

Now, Just Spend the Money that’s Left Over

The beauty of this setup is that you can literally spend the rest without worry. If you’ve got your retirement and short-term savings taken care of prior to you even getting your money, then you’re set. No worries, right? Pay your bills and spend the rest.

It’s not fool proof, I know. But, I’ve found it’s the method that’s easiest to stick with. It’s worked for me. Give it a go!

Photo by:Georgios Karamanis

{ 8 comments }

Mrs. PT November 18, 2008 at 9:55 am: Good point
Miranda November 18, 2008 at 3:52 pm: This works very well for me. We save automatically, and it’s as if the money was never there to spend. The same principal goes for dollar cost averaging investing (especially with retirement accounts). I also like the idea of keeping things a little difficult to access.
Kacie November 18, 2008 at 5:38 pm: A quote from some Arnold Schwarzenegger movie comes to mind, where he says, “YOU LACK DISCIPLINE!” lol.

I think it’s at least partly discipline.

You really do have to make it automatic, whether it auto-drafts without you having to do anything, or if you physically transfer money to savings for each paycheck.
karla (threadbndr) November 19, 2008 at 10:27 am: This is exactly how I do it. I do have a savings account attached to my checking account, though. But it is used just to hold money for my periodic (property taxes and quaterly insurance) and unpredictible bills (like vet bills and routine car maintenance). These are just escrow accounts as it were.

I want that money out of my checking account (so I can ‘spend the rest’ without worry), but one touch accessible. This is a compromise for those funds that will be spent within the next few months.

But for the REAL savings, out of sight, out of mind works best. It’s remarkable what even a small investment each month will grow to if you just leave it alone!
Andy November 19, 2008 at 10:52 am: This is a great and simple method, until you realize that your 401K is down 30%, yet your spending has not fallen by that much!
-g November 19, 2008 at 4:22 pm: not everyone wants to save up money. Jesus told a parable of a guy who built bigger barns to save money- he died. Jesus would make a bad financial advisor. ‘Give it away!’
PT November 19, 2008 at 5:02 pm: @ -g The point of saving your money (and spending less) is to have a freedom to do what you want with it. Giving it away could definitely be your goal. The point of automating and separating is to make sure you at least have it to give away at some point. Thanks for your comment.
Donny Gamble November 20, 2008 at 12:14 pm: Saving is like trying to go on a diet, it works for a couple weeks, then you go back to your normal ways. People must realize that not saving money can effect the way that they live their lives in the future. People must make their savings automatic and also make it a way so that they cannot touch it.