Today, I want to talk about the 5 biggest savings mistakes that I’ve made in my life and share them with you guys.
No one is perfect and that includes me. We have all made mistakes in life and there is no reason to feel ashamed of it. So let’s get to it!
Mistake #1: Going Into Debt
My first mistake was going into debt. The first mistake I made was spending far more than I could afford. Whether the debt is student loan debt, a mortgage, a car loan, or credit card debt, you have to understand how crippling debt is when trying to save more money.
If you are in debt, just try to save for the short term and spend the rest of your money and attention trying to lower your debt and pay off your debt. The reason for this is because any debt that you are carrying has a higher interest rate than what amount you are saving in the bank. So the first step in trying to save money is really trying to get out of debt first.
My mistake was that I bought a co-op studio in Queens (NY) for $150,000 where I put a %20 downpayment and I would be taking $120,000 loan out from the bank. I didn’t really fully understand how much I would be paying in interest though. Over a 30-year mortgage, on that $120,000 loan – I would be paying another $120,000 in interest payments. So this apartment that is supposed to be $150,000 – I would end up paying $270,000 due to interest payments.
The reason I bring that up is that it is important to understand the opportunity cost of money. When you are in debt, you are promising your future earnings to pay off something that you are buying today and you will have less money to save and invest in opportunities in the future. So, my advice to you is to get out of debt as soon as possible or just don’t go into debt in the first place.
My problem was that I didn’t really need to move out and buy that apartment. I just wanted a little bit of privacy and seem a little bit cooler than a guy that was living with his mom. You know what’s less cool than a guy that is living with his mom? A guy that has no money and is broke – that’s what is less cool.
Mistake #2: I Spent My Savings
Savings are just that, money that is not meant to be used and is meant to be kept for a long time. Too often, savings are used to fund expensive lifestyle decisions like going on a vacation, a diamond ring, a wedding, a honeymoon, or even the down payment for your house. Personally, I was guilty of spending my savings on parking tickets, on expensive toys, on things that I thought I needed – like when my cell phone broke and absolutely needed to get a new cell phone because I couldn’t live without it.
With interest rates on savings rates being the lowest that they have ever been, 0.09%, there’s really very little incentive to put your money in a traditional saving account because it’s not doing anything there. Considering inflation averages about 2-3% a year, you are actually losing money every day your money is sitting in a savings account. With barely any incentive to save, it makes a lot of sense that a lot of us are spending our savings account like our checking account.
As good as online banking is, it has really been detrimental to us as consumers. Back in the day, when you wanted to move your money out of your savings account – you would have to go down to the bank, talk to a banker, ask the banker to withdraw the money, wait a couple of days for the money to be transferred, and then you would actually get the money. Nowadays, you can do it with a touch of a button. This delay in combination with the effort involved would allow us enough time to think over our decisions – maybe, it would be enough to deter us completely from taking money out of our savings account in the first place. As banks have evolved over time, it allows consumers to access their savings account more quickly than ever before.
I urge all of my viewers to never spending your savings. Unless for two reasons, the first one being in case of a medical emergency or in case you lose your job and need to pay your bills. The second one being incase there is an investment opportunity that comes your way and you want to have cash ready to invest start working for you.
Mistake #3: Never Set Up Automatic Transfer Into Savings
Not setting up an automatic transfer from checking to my savings account was definitely one of my biggest mistakes. I always thought I would save money at the end of every single month once I saw that there was extra money in my checking account. The problem is that there was never any extra money.
As the great Warren Buffet once said:
“Do not save what is left after spending, but spend what is left after saving”
This means that you should transfer money directly into your savings account whenever you get a paycheck and live off the remainder – you will figure out a way to do it. So, the exact amount anyone should transfer from their checking to their savings depends on their personal situation. For me, my advice is to transfer as much as you can handle.
I try to transfer $500 every two weeks the day I receive my paycheck directly into my savings account. Once this automatic transfer is set up, you need to make a commitment to not spending your savings. This automatic transfer will help people reduce their consumption and spending and also help build good money habits. This might be difficult at first but once enough time has passed you won’t even notice this money that is automatically going from your checking to your savings.
The reduction in your disposable income will teach you to live a more modest life and even help you make better lifestyle decisions. After a while, once I automatically set up this transfer into my savings account – I didn’t even notice that I was missing this money. Afterall, how can I miss money that I never had?
Mistake #4: I Paid For Other People’s Skills
This is a general topic that can be interpreted in many ways. I am referring to the most basic tasks in life that we outsource because we’re too busy or lazy to do it ourselves. To be clear, I’m not saying that everyone should go Google their own ailments and become a doctor instead of actually going to a real doctor – there are somethings that are worth paying for.
When we begin ‘adulting’ in our journey of life, we begin to think we deserve things. We can’t be bothered to do menial, boring, or mundane tasks that we can simply pay someone else to do. The main task we outsource is cooking. Stop eating out or ordering delivery. Learn to cook and cook at home! By cooking at home, you will save a ton of money and live a healthier lifestyle. Cooking at home has a high upfront cost when you buy the pots and pans, the knives, whatever herbs/spices, or sauces that you need. But once you have all of that stuff, cooking cost a fraction of what it costs to eat out or even eat at places like McDonald’s.
Here, in New York City, eating out costs anywhere from $8-12 and ordering in costs even more. But when you cook at home, the average meal costs anywhere from $2-3. If you manage to cook all of your meals, three times a day, every day for a year, then you will end up savings ~$6,000-$8,000 on average – that’s a lot of money!
Cooking was not the only thing that I outsourced to other people. I paid plenty of professionals for other things. I remember a time I call a plumber into my house and I paid him several hundreds of dollars for what looked like putting glue around a leaky pipe in order to stop the pipe from leaking. There weren’t any new parts, it took under an hour, but I was charged $300-$400 for that service.
So, instead of buying glue or that new piece for just a few dollars, I spent 100 times what was needed for a profession to come and fix it. There are a lot of basic skills that we can learn today that will save us a lot of money. These skills may be easy to learn or they might be hard to learn. The more difficult the skill, typically, the higher value and more money you save by learning that skill. For example, we can mow our own lawn, cut our own hair, cook our own food, clean our own house, fix our own pipes, build our own furniture, or manage your own finances.
All the things I mention do require effort though and putting effort into anything is frightening. In the book ‘Mindset’ by Carol S. Dweck, she explains why effort is so terrifying and why so few of us put in the effort to do the things that we want to accomplish in life.
“Why is effort so terrifying? There are two reasons. One is that in the fixed mindset, great geniuses are not supposed to need it. So just needing it casts a shadow on your ability. The second is that it robs you of all your excuses. Without effort, you can always say, ‘I could have [fill in the blank]’. But once you try you can’t say that anymore”
Mistake #5: I Was Too Scared To Invest
As I mentioned before, if you leave all of your money in your savings account then you are losing money every single day due to inflation.
Investing is an obvious requirement if you are to become rich. It is unclear to me why so few people take the time to actually invest in something. It is easy to use the limiting belief that the stock market is too complicated or investing is too scary, but the hard thing to do is to take the proper steps to start investing wisely.
My horror with investing is when I was just starting to learn how to invest. I had $1,000 to invest and I put it all in a company called Etsy when they IPO’d – maybe you know of Etsy. Etsy is a great company, but my problem was that I didn’t understand that IPO stood for ‘Idiots Pay for Overpriced Stock’. I ended up losing $600 out of the $1,000 investment when invested in Etsy.
I felt incredibly embarrassed about the whole thing and even a little bit ashamed. I was like the vast majority of people and didn’t really know how to invest. Once I received my first loss in the stock market, I swore off the stock market for years. Until a few years later, one of the stocks that I bought tripled in value. Once I saw the potential opportunities in the stock market, I was able to overcome my fear and anxiety and started investing in the stock market about a year ago.
Now today, over the past year, I have beaten the stock market by over %71. And it feels good having my money work for me.
The fear I felt that drove me away from investing altogether and leaving my money in my savings account was my biggest savings by far because I missed out on 2 years of great gains. Out of all the savings mistakes that I have made in this video, I bet most of you guys are guilty of #5, not investing.
Don’t worry though, it’s never too late to start getting investing today. A lot of people think the ship has sailed, but the best thing about investing is that you don’t need to swing at every single pitch that comes your way. You just need to hit the ones that matter.
So, that wraps up my 5 biggest savings mistakes.
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