Very many people do the bare minimum of saving, many more don’t save at all. Most people would like to be in a better financial situation but seem unable to muster the energy to find out what they can do to finally start saving and eventually achieve financial independence. Here are 9 reasons why you are not saving yet that may help you get on track and start moving towards a more rewarding financial situation.
1 You have not spent any time analyzing your spending
For those who find statistics, spreadsheets and meticulous review of accounts interesting it should be no problem to figure out where your money is going. For others, this is very painful and boring. In either case there are great tools out there that can help you visualize and find out what you spend your money on. Once you have a bigger picture you can begin to take steps to limit spending in some categories. In my opinion the best tools for getting a good picture of your spending patterns are those that automatically import bank data. Living in Iceland that would be an service called Meniga which automatically imports data from almost all banks in the country you have an account with.
After you have a better picture of your spending habits, you will have an easier time to figure out where you would like to cut spending. A word of caution though; if you don’t have a goal in mind (see step 2), you may not feel compelled to cut spending.
In general I find it useful to think about cutting spending by asking myself three important questions about the spending habit, number one and most important is whether cutting this spending will help us reach our financial goal quicker. Question number two is whether cutting this spending will result in me living a healthier life. I often find it very helpful to cut spending when it causes me to be more physically active, consume less calories or expose me to new skills that would be very useful to learn and know. The final question is whether this spending is actually an investment that will cause savings down the line. A good example would be acquiring tools to be able to do your own repairs around the home or how-to books on topics that, in the long run, will save you a lot of money and increase your skill set.
2 You have not created a financial end goal
If you don’t have a purpose driving your savings, your results will be lackluster. Before we had our goal of financial independence, saving felt like something you you should but it was not even close to central. We did not allocate large funds to our investments and did not accumulate nearly as much as we could have. All the things we spent our money on back then have faded from memory. It was only after we sat down and really thought about how we wanted to live our lives in the future that we got motivated to think strategically about saving and investing. It felt easier to set aside not just a large part of our income, but a huge part of it after creating a vision of the future, a strong goal.
Whenever I transfer money at the beginning of the month to our investments or mortgage I have our vision in my head. I see myself having time for our child, and for myself. I have a hundred hobbies, but spending 8 – 9 hours a day in an office and then coming home and doing household chores leaves almost no time for any of them. Being freed from this is what drives me. Yes a brand new car would be nice but that is going to take me further away from my vision, not closer. Yes a weekend trip to a resort would be nice but that also would take me further away from my vision and not closer.
3 You don’t spend any time analyzing your investment options
This was definitely true of me (Sæþór) for a long time. In the US, most teenager’s financial education is rudimentary at best, so I was only trying to build credit, and save money. Both of those are good goals, and even doing so it put me ahead statistically of the majority of my peers, but I wasn’t doing either smartly. I took the first CC that came in the mail, waited for their own credit line increases rather than asking, and didn’t run everything through the card that I could, which is a common method in America for building up one’s credit score. With my savings, I put it only in a standard savings account, though I did shop around for the one with the best interest rate (still abysmally low). If I had been smart I would have bought bonds, REITs, index funds, or even some stocks, but I was either unaware of those options, or they seemed more complicated than I could handle.
Equally when moving my savings from the US to Iceland, I did no research on historical exchange rates, which would have pointed to the timing being poor (I moved over my savings at an all time low exchange rate, that would actually have been fairly obvious a correction was coming in the short term, had I looked).
4 You dont think strategically about your life (small pain at the beginning for a reward)
This is a big one. Especially if you go from having little to no money as a teenager, to having the funds of a job without having to pay rent and other bills. You’ll find yourself with a plethora of funds, but equally many opportunities to spend it. It’s very easy to “grow into” any income increases.
Some examples of strategies I have thought up to save money, but required small pain at the beginning: We started cutting our own hair. I had to learn how to cut hair, find the right shaver/scissors to make the task easy, and then do it. In the five years since doing that for two adults and now our son, we have saved thousands of dollars. Another is working out at home. We knew with our son’s birth coming up, we’d need to quit the gym anyway for at least a period, but we didn’t want to stop exercising. So we got some at home weights and matts, and could cut out the monthly gym membership which was quite pricey. It takes more mental energy to get myself to workout, and I have to come up with the routines, but it’s saved us money. A third example is eating out. We used to go out at least one evening a week, but we could see that would add up in cost over the years, so now we go out much less often.
Sometimes an expendature is still worth it, and that’s ok. The important thing is to weigh the long term costs against the benefit it provides. We both love going to the movies, but that’s a weekly cost that adds up. We decided that was worth it, so we still go regularly. We did find that Tuesday nights are half priced, so we make sure to wait til then to see a movie, so we did identify some cost savings with a small change.
5 You have not come up with a strategy for reaching your financial end goal
6 You don’t have the right mind set for accumulating wealth (look at every (larger) expenditure as either something that will save you money or make money)
7 You have too many wants (change some of your wants from things to skills)
8 Risk aversion (double edged sword)
9 You are too comfortable