How Not Saving Can Ruin Your Financial Stability: Personal Finance Mistakes to Watch Out For

Surely you are going to give me a lot of reasons why you can’t save, but I tell you one thing: saving is not optional. Not saving sooner or later is going to lead you to have financial problems and you will have to find money urgently. If you are already at this point, get down to work to solve your problem quickly:  You can read about the 12 ways to earn fast money that they recommend and with which you may be able to get out of that predicament. But the idea is to avoid reaching these emergencies.

And you will tell me, but how am I going to save money if I don’t earn enough for my day-to-day? You are haunted by bills and expenses and it seems impossible, right?

Mistakes in personal finance: Not saving

Well, you need the impossible to become possible because, in addition to having many benefits, not saving can have very negative consequences.

Let’s talk about the benefits first.

Benefits of saving money

For the past 20 years or so, Inma and I have kept an account where we put money in every month. It is the account that we call the emergency fund and into it, we deposit 10% of our income every month.

There have been several times that we have had to use it and that has prevented us from having to ask our family or friends for money.

Saving money is like an insurance policy that you take out on yourself and that covers mishaps that may occur in your life.

Because life is going to put obstacles that you are going to have to overcome and many of them are going to have some relationship with money. A few examples:

• Both Inma and I were fired from our jobs for reasons beyond our control and that we also could not foresee. In one case it was due to an unexpected bankruptcy of the company and in the other due to the acquisition of the company by a multinational with the consequent elimination of duplicate positions. When they fired me, Inma had already been fired for a few months. Thanks to the emergency fund we were able to hang on long enough to start our own businesses.
• On another occasion, we sold a car to a used car dealer. The dealer had to make the name change but since that has a cost and they assumed that they were going to sell it soon, they did not. While they had the car, a salesman from the dealership was driving it, who was so skilled that he got 2 speeding tickets on the radar and several more (I don’t remember how many) for parking the car in a prohibited area. The fines of several thousand euros were sent to me and before I could prove that I was no longer the owner of the car I had to pay them. In the end, we got our money back but first, we had to put it down.
• Another time they call me from my bank and ask me if I just made several purchases at a Walmart in Houston. Yes, ” Houston we have a problem .” I told them no that I was in Valencia (Spain) and they told me that they already figured it out because the day before I had purchased it in a supermarket here. So they cancel my card but they warn me that purchases of television and I don’t know what other things go up to almost 3,000 euros and that they can’t cancel that. I had to file a complaint, go to the bank with her and wait several months until they returned my money.

In these 3 cases, if we had not had money in the emergency fund, we would have had a problem. None of the 3 was predictable but in all 3 it was necessary to have money saved to fix it.

What other benefits does saving money provide?

1. Not having to ask family or friends for money: it would be very difficult for me to have to ask family or friends for money to get out of trouble. From the moment they have to lend you their money, I get the feeling that your relationship with them changes. You can’t just do anything anymore because you know you owe them money and they might think that instead of doing that you should be doing something to pay them back. But what’s more, what if it turns out that no one can lend you that money? You better have money saved so you can bail yourself out.
2. Rebound you eliminate debts: when you get used to saving money for an emergency fund, suddenly it is easier for you to eliminate other debts that you have out there. Since we got used to putting money in the emergency fund, the rest of the debts, except the mortgage, gradually disappeared. Also helped by the development of our current businesses, right now we pay practically everything in cash and cash. I haven’t withdrawn money from an ATM in at least 15 years, which helps control spending. If there is no cash, it is not spent, and therefore more is saved.
3. You decide how you want your life to be: having money saved that can cover you against any economic unforeseen event allows you to do things that you simply want and that without that money you would not dare to do them. Trying to create your own business is an example, accompanying your children to their training or extracurricular activities is another example. Going on a getaway or a trip when in all the media they scare you because of the crisis is another. With an emergency backup fund, you can design what you want to do with your life.
4. Have a retirement that suits you: getting into the habit of saving money will allow you not only to accumulate money in an emergency fund, but you will also learn to save to invest. We will talk about that in the next point of this series of articles, but let me tell you that in addition to the 10% for the emergency fund, we put another 10% of our income into investment. We currently have a modest portfolio of stocks that offer increasing dividends. They pay x euros per share and have been increasing what they pay for many years. Right now all the dividends are reinvested, achieving what is known as the snowball effect of compound interest. When our retirement arrives, we will stop reinvesting the dividends to consider them as extra monthly income.

In addition, saving money in a bank has several advantages:

1. Your saved money earns interest: our advice is to look for a remunerated account to put your savings into. Right now there are not many opportunities but you can find something, especially in online banks. If you put the money there instead of in a jar at home, month after month you will get a few pennies. Even if it’s not much, it’s always good to get paid for simply leaving your money there.
2. Your money is more protected than at home: if a bank goes bankrupt, there is something called the Deposit Guarantee Fund (DGF) that guarantees that you do not lose your money. At least not everything, since this fund has a coverage limit of up to 100,000 euros per holder. In other words, if you have 200,000 euros in a bank and it goes bankrupt and there were 2 account holders, each of you will recover 100,000 euros. That is, you recover the 200,000. But if you have more and the bank goes bankrupt, you lose the excess over those 100,000 per holder. That is why it is better, if you have more than 100,000 euros saved, to diversify it in several banks.
3. It costs you more to spend it on impulse: since you have to go through a series of procedures to get the money out of that account to spend it, it is always going to be more difficult for you to be tempted and spend it on impulse after seeing something that you would like to have or do.

Consequences of not saving money

Seeing the benefits we can almost be clear about the consequences of not saving but let’s review them:

• You will have to swallow saliva and ask family and/or friends for money.
• You will have to trust that when you retire, the pay your government gives you (if there is pay by then) will be enough to live with dignity.
• If you get fired, you can run to find another job quickly. About what? Whatever. If you don’t have money saved, the bills will quickly destroy your lifestyle.
• All of the above will cause you to stress. And stress breeds disease and other bad things. Better not go there.
• Not having money saved is also usually expensive since you will have to pay interest for not making some payments on time, for having to use certain types of credit cards, for having to apply for loans, etc.

It doesn’t look very good, does it?

And why aren’t you saving?

During the year 2020, amid a pandemic, savings, at least in Spain, broke records. In 2021 the level of savings dropped again a lot. At present, in the year 2022, it seems that the level of savings has risen again. The uncertainty of the current world situation seems to have permeated and the level of savings seems to be growing again.

However, many people say that they can’t save. And why is this? What are the main reasons for not being able to save?

1. I don’t earn enough money: Many people say, “How am I going to save money if I barely earn enough to live on?” I can tell you with almost complete certainty that this is true in only a small percentage of people. If you think this is your reason for not saving, try this exercise: budget your basic needs for one month. Get serious about basic needs! Do not include anything that may be expendable. Compare it with what you earn in that month and see if there is a lack or surplus of money. Do the same with the rest of the months. If in the end, the sum of what is missing each month is greater than the sum of what is left over, then it is true that you have a problem and you need to do additional things. If what is left over is greater, even if it is little, and you are not saving, it must be for one of the reasons that follow this one.
2. You are experiencing life inflation: as the years go by it is usually true that you earn a little more money every time. At least until a few years ago, this was the case, now I am not so clear about it. But hey, let’s assume that this is so. Over time you have learned how to earn more money or over the years your salary has been raised. And what has happened? that with more money available, instead of saving it, you have decided to dedicate it to everything you liked to do or wanted to have and you could not and you have increased your expenses in a way that does not allow you to save anything. Do one thing, take 10% of that income as soon as you receive it and take it to the savings account. With the rest, you can do all that you dreamed of.
3. Saving is not a priority for you: and maybe you don’t know it. Perhaps you think that saving is a priority, but your actions say otherwise. Check if you have at least several of these things. If you don’t do them then saving for you is not a priority:

• • You send every month without exception at least 10% of your income to a savings account.
  • You review your monthly bills to see if it is possible to reduce something in any of them.
  • Have you ever cut an expense to send more money to the savings account?
  • The money you send to the savings account has increased every month that you have experienced an increase in your income due to an extraordinary event.

1. You are in a moment of your life that you cannot save: you can understand what you say. Perhaps you have been a mother or father, perhaps you have a large family with several children going to school, spending on shoes and clothes, dentists, eye doctors, with extracurricular activities. Perhaps you are trying to get a business going and all the money is dedicated to that. I understand but those are not enough reasons not to save. We only had 2 children but we know what it costs to get ahead of each one of them. We have also had to start not one but several businesses. And we have done it without stopping saving. You can do it too.
2. Your partner does not support you in saving: it is very normal that in a couple one of the two has the saver profile while the other has the spender profile. But you both need to get on the money-saving bandwagon. You can use technology to help both of you stay aligned on saving. There are many apps that you can install that can help you.

We could go on but we will leave it here.

I hope this article helped you a little if you have fallen into this financial mistake of not saving. Remember that if you have any questions you can leave us a comment. We will be happy to try to help you.

 We have created this series of articles to learn how to detect errors, to know the consequences, and to see possible solutions to improve the financial situation.

Guesr post by:Juan Ramón Gómez