Top Reasons Why Americans Are Not Saving Money

Financial Steps to Take That Will Help You Save Money

Man using calculator in home office to add up bills and debt

wutwhanfoto / iStock / Getty Images

Nearly 1 in 4 Americans has no emergency savings and without a cash cushion, you could be putting yourself at financial risk. Saving money is a concept most people believe in yet so few manage to practice. There are many reasons why people may find it difficult to save, but here are a few of the most common excuses:

  • I don’t know where to save.
  • I don’t know how to save.
  • I can’t save.
  • I don’t have enough money to save.
  • Prices have gone up and now I can’t save.

If you've found yourself relating to one of these excuses you may be having a tough time getting over the mental barrier that prevents you from putting aside a set amount of cash each month. Think back to your days in college. Even though you liked one subject, you HATED another. You would go to the library before an exam motivated by the potential of a good grade. Once you started reviewing the material, you would get frustrated that you didn’t understand it. Then, you would take a break, go back, and continue to be frustrated.

That’s how most Americans feel when it comes to saving. But if you're one of them, you don't have to accept a lack of savings as your permanent fate.

Here are some smart financial steps to take if you need help overcoming your own mental barrier.

Pay off Your Debt

Paying off debt may not seem like saving but it absolutely is. When you get rid of debts such as student loans and credit cards, you're laying the foundation you need for financial stability in the future. The money you've been paying to debt (and throwing away on interest) can now be applied to savings instead, where it has the potential to grow. If you have several debts you're trying to pay off, consider using the debt snowball method to make your plan work. This strategy can help you achieve debt freedom faster while minimizing the total amount of interest paid on your debt.

Build Emergency Reserves

Emergency reserves are just that, money used only in case of emergencies. For example, this is money you'd draw from if you got sick and had an emergency doctor visit or your car breaks down. An ideal amount to aim for is three to six months' worth of expenses but if you can't have that all at once, start with socking away just month. From there, you can continue building your emergency savings with regular monthly contributions. Set up an auto-deposit from your paycheck into your emergency fund, and let it grow in a high-yield savings account. Hopefully, you’ll never need to use it.

Separate Short and Long-Term Savings

While you may park emergency savings in a high-yield account, longer-term savings goals, such as planning to purchase a home, can be better served with a different type of savings account. Consider whether your savings goals are ones you're working towards in the near future or if you have several years to plan. Then, decide whether to incorporate a money market account or CD accounts into the savings mix.

Max Out Retirement Plans

Match and max out your 401k if your company offers one. Getting the full company match is essentially free money and you can't afford to leave it on the table, particularly if you're behind on retirement saving. If your company offers a 401k, increase your 401k contribution amount to be at least what the company is matching each year.

Then, consider how you can max out additional retirement savings opportunities. For example, you may contribute to a traditional IRA if you'd like to get a tax deduction for those contributions. Or, if your adjusted gross income allows, contributions to a Roth IRA may be preferable for enjoying tax-free withdrawals in retirement. Round those tax-advantaged savings options out with contributions to a Health Savings Account if you have a high deductible health plan.

Invest in a Brokerage Account

Put money into a brokerage account once you've maxed out tax-advantaged retirement accounts. Many refer to this just as an investment account and there are no maximum amount restrictions or investment restrictions. It’s an account that allows you to invest in any type of investment, such as a stock (Apple, IBM, etc.) or bonds. There are no tax benefits to a brokerage account, but it is very useful for your financial foundation. Just keep in mind any earnings you realize with this type of account are considered taxable capital gains.

Take Baby Steps to Save

It can be easy to lose motivation while saving because results are not immediate. But, to complete the steps to financial stability we need to find a way to stay motivated throughout the savings process. One way is to break down your savings into monthly goals. When you reach those goals be sure to reward yourself with dinner at your favorite restaurant or maybe a piece of jewelry you’ve been eyeing. Remember not to use all of your savings for your reward, just a small piece of it. The goal is to ​save, but the mentality with this program is that if you save $200 and spend $50 of it, you have still likely saved more than you would have if you didn’t reward yourself.

Unfortunately, most people wait until it’s too late to worry about their savings. Now, that you're aware of the barriers and hurdles that are not so difficult to overcome, it’s time to begin the process that will allow for you to say down the road, “thank goodness I started saving early.”