If you are like many Nigerians, one of your 2020 goals would likely be to spend wisely and save a lot, especially after last year’s ‘Detty December’. Your goal is laudable but saving money could cost you money if you don’t do it right.
In this article, common mistakes people unconsciously make in saving money are shown, as well as how these pitfalls can be avoided.
Saving in traditional piggybanks:
The easiest way to lose out saving money is to put your cash in piggybanks.
Popularly known as “Kolo”, these wooden or plastic containers will ensure inflation erodes the value of your money-if insects or thieves do not get to it first.
An easier way to save is in a bank for the safety of funds and importantly to ensure your savings earn interest.
While in Nigeria savings account attract as low as 2 to 6 percent per annum compared to annual inflation above 10%, it still beats the returns any piggy bank can offer.
Not automating savings:
It is okay to have trust issues (with yourself) when it comes to saving.
If you struggle with sticking to your savings plan, then it is a must you automate your savings-and there are several apps for that.
Even if you are disciplined enough, apps that automate savings also have features that allow you to create savings target and can estimate how much you need to save per period to reach that goal.
Saving into your main account:
One of the worst things to do is keep your savings in a pool of fund you withdraw from regularly.
Whatever you do, create a separate account for your savings and ensure it is solely for that purpose.
Not knowing interest rate:
It is not enough to save because money loses value with time. This means you must be compensated for keeping your money with any bank or fintech company.
Knowing the rate of interest across banks and platforms is, therefore, necessary if you want to get the best return on your fund.
Saving too much:
In Economics, a theory called Paradox of Thrift posits that if everyone saved during a recession the economy will be worse-off. That is not what this is about.
When saving, you must ensure you get your budgeting right and do not save more than you can afford to or else you might end up in (costly) debt; borrowing to support your budget. The 20/30/50 principle advises 20 percent of income be kept aside.
(In a few instances, debt can be cheaper than spending your cash. This depends on the cost of borrowing and inflation rate.)
To avoid stories that touch, you should create an emergency fund you can easily access to solve any urgent and important need.
Forgetting to invest:
There’s a true saying, “Nobody has ever gotten rich saving.” It is unlikely you would be an exception to that rule.
To grow wealth, you must take some form of educated risk in assets like stocks, cryptos, currencies etc.
You must, however, speak with an investment expert if you are unsure about what to do.