Is your bank balance looking a little low? You’re not alone. Many Americans are living paycheck to paycheck due to rising costs. However, inflation isn’t the only thing that might be ruining your savings. Bad habits like impulsive spending, ignoring high-interest debt, and living above your means could be draining your wallet. Read on to determine if some of your financial behaviors are to blame for your dwindling nest egg.
1. Impulsive Spending
When you think of impulse buys, you probably picture the shelves full of candy and magazines by store registers. However, impulsive spending isn’t limited to last-minute, in-person purchases. For most people, their unplanned extra spending happens online, particularly on Amazon. Even if you just log on to buy paper towels, unnecessary items can easily sneak into your digital shopping cart.
Blocking shopping sites on your laptop is a great way to end impulsive spending. Finance experts also suggest leaving items in your cart for a day or two before you make the purchase. Most of the time, you’ll realize you don’t need those weird kitchen gadgets that seemed like a great idea at 2 AM, helping you save money. It’s also a good idea to avoid online browsing and shopping when you’re feeling emotional or tired. When we’re drained, we don’t make the best financial decisions.
2. Moving Money Out of Savings to Cover Bills
Due to inflation, many Americans are dipping into their savings to cover regular monthly expenses and bills. However, this habit is unsustainable and can quickly drain your nest egg. If you have to tap into your reserve funds to pay for groceries or gas, it’s probably a sign you need to earn more income.
Although it isn’t always easy to increase your earnings, strategies like asking for a raise, job-hopping, or picking up a side hustle can help generate the extra cash you need. It may also be beneficial to take a look at your monthly outgoings and see if there’s anything you can cut. Unfortunately, you may need to make some sacrifices to offset rising prices, such as eating out less often or giving up Netflix.
3. Not Setting Savings Goals
It’s hard to feel motivated to increase your savings if you don’t have a goal in mind. When it seems like you’re stockpiling cash for no reason, it’s difficult to avoid the temptation of impulsive spending. Figuring out how you intend to use the money you’re stashing away can help you stick to your budget.
Whether you’re hoping to buy a home in a year or two or go on a fun vacation, defining your goals will make it easier to tighten your belt financially. It’s also important to research the potential cost of your future goals so you can set an accurate savings target. Tracking your progress as you get closer to that magic number you need to achieve your dream is also a great way to maintain momentum and motivation.
4. Lending Money to Loved Ones
Nothing drains savings faster than being a piggy bank for friends and relatives. Although it’s hard to say no when someone’s in a tight spot, giving up your emergency funds now can put you in a bad position later. You never know when you’ll need that cash to cover a nasty surprise like a job loss or accident. It’s also possible the person that you’re subsidizing might not pay you back, causing your savings to dwindle. Unless you truly won’t miss the money, it’s wise to think twice before lending money to loved ones.
5. Failing to Invest
If you’re only stashing money away in a high-yield savings account, you’re doing yourself a disservice. Failing to invest can cost you thousands upon thousands of dollars in lost compound interest. Although it’s important to have liquid savings for emergencies, you don’t want to be cash rich and investment poor. Stock market returns average 7% per year after inflation, so don’t deprive yourself of those gains. Make sure to educate yourself on investing strategies or reach out to a fiduciary financial advisor for help.
6. Living Above Your Means
If you don’t have an impulsive spending habit, you may be wondering why you always feel like you’re behind financially. Making unnecessary purchases isn’t the only way to live above your means. Locking yourself into monthly bills that are too high for your income could be ruining your savings. For example, living in a nicer, more expensive apartment than you can afford will strain your budget.
According to the National Foundation for Credit Counseling, your housing payment shouldn’t consume more than 30% of your gross income. Car payments are another common source of lifestyle creep. To determine if you’re living above your means, research the recommended amount you should spend on necessities like groceries and transportation based on your income. If one of these categories is busting your budget, you may need to consider bigger lifestyle changes like getting roommates or selling your car.
7. Ignoring High-Interest Debt
Credit card debt and car loans can come with high interest rates that strain your budget, leaving little room for savings. The amount of interest charged on a 20% APR credit card can be staggering. To see how much your plastic is costing you, look at the “interest charge calculation” section towards the bottom of your monthly credit card statement.
Seeing how high that number is will motivate you to pay off your debt. Reducing your impulsive spending, curtailing lifestyle creep, and increasing your income can help you generate the extra income you need to crush your debt. Once you’re out of the debt cycle, you can funnel more of your money toward savings and build up your nest egg.
You Can Recover From Impulsive Spending
Even if you’ve been engaging in impulsive spending and living above your means, you can turn things around. It’s never too late to make a change and embrace a more frugal lifestyle. Although it can be difficult to make sacrifices to improve your finances, changing your behavior will be worth it. The sense of relief and financial peace you’ll feel when your bank balance grows is immeasurable.