4 Key Signs You Should Be Saving More (And Where To Put That Extra Cash)
Whether you realize it or not, anyone can fall into the trap of becoming a little too conformist when it comes to your finances. Maybe you ended up indulging in that new designer outfit rather than stashing extra cash in savings.
The problem is — it’s hurting your pocket more than you’d like to admit.
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“One common sign that you could be saving more is the frequency of impulse purchases,” said Justin Godur, financial advisor and founder of Capital Max.
“If you find yourself buying items you don’t need just because they’re on sale, you could be losing out on significant savings over time,” he added. “It’s easy to justify these small expenses, but they can add up quickly.”
Below are more key signs, according to experts, that you should be saving more than you are — and where you can put that extra cash.
Credit Card Balances
“If you’re carrying credit card balances, you should be saving more,” said David Bakke, financial expert at DollarSanity.
“Paying interest on credit card balances is absolutely wasted money,” he explained. “Get on a budget, cut expenses and send in extra until the balances are zero. Then, you’ll have plenty of extra money to save and put it wherever you want to.”
Frequent credit card usage for necessities is a big no no, according to Jonathan Feniak, general counsel at LLC Attorney.
“Relying on your credit card for basic necessities is a cardinal indication that you should be saving more,” he explained. “Falling into credit card debt is easier than most think, and healthier saving habits can prevent this.”
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No Emergency Fund
You should be saving more if you have no emergency fund, Bakke said. “Consider this example — you have an unexpected $1,000 car repair bill and no emergency fund. You put the repair on a credit card and pay interest on it for several months. That is wasted money.”
“Had you created an emergency fund and stocked it, you wouldn’t have paid any extra money. Save more and get an emergency fund going,” he said.
Dennis Shirshikov, finance professor and head of growth at Go Summer, agreed. “One clear sign you should be saving more is if you have no emergency fund, or it covers less than three to six months of living expenses.”
He said the absence of this buffer can leave you vulnerable to unexpected expenses, such as medical emergencies or sudden job loss.
“Another indicator is if you’re living paycheck to paycheck, which suggests you may not be saving adequately to cushion against financial shocks or future needs,” he added.
Overdraft Fees
If you find yourself frequently incurring overdraft fees or relying on credit cards for everyday expenses, Shirshikov said it’s a signal that your financial commitments may be outpacing your income.
He said this necessitates a closer look at both your spending and saving habits.
No 401(k) or Retirement Plan
Feniak said if you’re relying solely on government schemes for your retirement, it’s essential to realize it’s not enough for a comfortable living in your twilight years. “By saving more now, you can invest in a retirement plan that guarantees a peaceful and worry-free retirement.”
Bakke also noted it’s important to take advantage of a 401(k).
“If you have an employer-based 401(k) plan available to you and you’re not using it, you should be saving more, through it,” he said. “Here’s the good news. The contributions are tax-free, and even if you contribute only $50 per paycheck, you’ll likely never notice it.”
He said this is a no-brainer. “If you aren’t saving enough to contribute to this plan, then you need to make changes immediately so you can.”
“Budget your money, track and reduce spending, and free up the money so you can,” he said. “Bonus points if your employer matches funds, which is free money.”
Here’s Where To Put That Extra Cash
For short-term goals, a high-yield savings account or a money market account is ideal, said Shirshikov, as these offer higher interest rates than standard savings accounts while keeping your funds liquid.
“For long-term savings, consider retirement accounts like IRAs or 401(k)s, where your investments can grow tax-deferred or tax-free,” he suggested. “Investing in low-cost index funds can also be a wise strategy, as these funds typically provide good returns over the long term and diversify your risk.”
Godur agreed that it’s necessary to make adjustments.
“The key is to stay vigilant and continually assess your spending habits,” he said. “By recognizing these signs, you can take control of your finances and start saving more effectively.”
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