Don't get trapped by your savings plan

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February 9, 2011

In a society where credit is easily available, saving can often be neglected. Having a good savings record, however, is crucial when it comes to securing a loan or even applying for a credit card. And if you dream of owning your own home, the first step is to save a substantial deposit.

While as a nation we are now saving more than ever, your savings plan can be derailed if you don't pay attention to common traps when trying to save.

Back to basics
The first trap people fall into is not having a regular savings sum. Financial advisors suggest putting aside 10 percent of your income each pay period. If you can, of course, it's even better to save more of your income but defining your weekly, fortnightly or monthly savings goal is a good start. An easy way to put this into practice is to open an online savings account and organise regular direct debit amounts into that account.

Getting started on your savings journey, however, is not a time to become complacent. Another common trap is not being prepared for major expenses or emergencies - you can be back to square one before you know it. Always factor in regular major expenses, such as insurance payments, car registration or education costs, and aim to save above and beyond these amounts.

When faced with an unexpected expense, it is not uncommon for people to dip into their savings account to pay it off. This is another trap and you should do your best to avoid it - it's unlikely you will make up the lost amount, even with the best intentions.

Letting go of bad habits
Watching what you save is not the only prerequisite to better savings habits; you must also keep a lid on escalating credit card debt.

There is no point putting money aside into a savings account if you are spending more on your credit card. The interest you pay on credit card accounts is often double or higher than the interest you are earning on your savings, and you may find that you are accumulating more debt than you are savings. Or worse, that you are spending more than you earn.

And remember: when trying to save, every dollar counts. One last trap to keep in mind is fines - whether parking fines or library fines, they eat into your savings. Learn to avoid them and your savings will thank you for it.



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