4 Signs You're Thinking About Saving Money the Wrong Way

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If you want to accomplish almost any important financial goal, the process usually starts with saving money. After all, you can't do things like invest for retirement or buy a house or build an emergency fund if you aren't putting aside some cash.

Unfortunately, many people are saving far too little -- likely because they're looking upon the process of saving in the wrong way. To find out if you might be one of those people whose attitude toward saving is impeding your efforts to do big things with your money, look for these four red flags.

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1. You look at saving as something you have to do, not something you want to do

Saving is kind of like dieting. If you look upon it as a form of depriving yourself of things that you want, you're never going to be successful over the long term. But saving shouldn't be something you're forced to do that prevents you from using your money for fun things. Saving money is something that you should be excited about because it allows you to accomplish really great things.

Whether you're saving for retirement or for a house down payment or for a vacation, get excited about saving money and about the amazing things that money is going to do for you -- like allow you to decorate a home of your own or to enjoy your life as a senior without financial worry.

When you shift your mindset and saving becomes something you're excited about, you'll be more willing to stick to your budget and more eager to find new ways to set aside more money so you can accomplish those important goals faster.

2. You don't have specific, measurable savings goals

Research shows people who set goals are more likely to be successful at achieving objectives. But it's not just any goals -- you need SMART goals. SMART goals are specific, measurable, attainable, relevant, and timely. In other words, you don't want to be vague about setting saving goals, and you do want to make sure you have a detailed timeline so you can measure your progress.

"Save for retirement" isn't a very good goal because it doesn't make clear how much you should be saving, what your deadline for saving is, or how you can tell if you're on track. Instead, a better goal might be to "save $443 per month for retirement starting at age 25 so you can end up with $1 million by age 63."

Obviously, you need to make sure the goal you set is something you can actually achieve. But the second goal is a much better one because you have a specific amount you need to save and a deadline -- and it's easy to determine if you're hitting your goal of saving $443 per month.

When you set specific saving goals, you can build the necessary amounts into your budget. And you're much more likely to actually save money than if you just have a vague plan to do so.

3. You're just dumping all your savings into one account

If all the money you save is just transferred into one savings account -- or worse, is just left to collect in your regular checking account -- you're making saving harder than it needs to be. You won't be easily able to track your different savings goals unless you have separate accounts for each. And you're way less likely to raid an account earmarked for a specific purpose, such as a house down payment fund, than if you just have the money in an account with a bunch of other cash.

Most banks allow you to open multiple savings accounts you can link, so do that for each of your goals. And, if you can, always open a tax-advantaged account for the specific type of saving you're doing. If you're saving for retirement, your money should be in a 401(k) or IRA. If you're saving for healthcare costs, open a Health Savings Account if you're eligible. When you get tax breaks for saving, it makes the process of setting aside money even easier.

4. You save your savings for last in your monthly budget

If you're planning to save what's left over after you fulfill all your other monthly obligations, chances are good you'll have nothing to save.

Instead of putting all your other needs and wants above your savings goals, make a budget that prioritizes savings. Your budget should first account for necessities, such as housing costs, food, transportation, and insurance. The very next thing on your list -- before any spending on wants -- should be savings. After all, saving money is more important than any unnecessary purchase you could make now.

Once you've got savings built into your budget, distribute the rest of your money to nonessential expenditures such as dining out and entertainment. If you don't have enough to save and cover other costs, look for ways to cut spending or boost what you earn.

After saving is built into your budget, automate the process. Transfer money from your paycheck to your savings accounts on payday so you always pay yourself first. If you do this, you'll be shocked by how much more you save than if setting aside money is something you do once other spending is done.

Now you can start saving money the right way

Now that you know how to spot these major red flags, you can make tweaks to your budget and your mindset so that saving becomes a real priority. You'll be a much more successful saver -- one who can accomplish big things with your hard-earned cash.

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