Three Savings Mistakes to Avoid

You want to get the most out of your savings. You have big goals, and you're committed to saving the money to reach those goals. It's hard to do. Most Americans don't have anywhere near enough savings. Many of us are in debt.

Deciding to get started with savings accounts is half the battle, but once you've committed to saving, here are some common pitfalls to avoid if you want to stay on track with your goals:

Mistake #1: Saving too little, too late:

It's never too early to save, but, for a lot of us, it's too late to save enough. Forty-three percent of American workers have less than $10,000 dollars in retirement savings. That's not enough. The younger you are when you start saving, the more the magic of compound interest can work for you. Sound investments can grow your dollars into the money you need to live after retirement. The trick is to start saving with your first paycheck, and continue the habit throughout your life. You simply can't afford to spend everything you earn.

How can you avoid this blunder? Save early and often. Participate in your company's 401(k) matching plan if it's offered. Set up a new savings account after you compare bank offers online. Make automatic contributions to your savings account every pay period. By paying yourself first--with automatic transfers if possible--you can settle into a lifelong savings habit that may spare you the looming retirement disaster so many Americans face.

Mistake #2: Spending your savings:

It's tempting to spend out your savings in response to a crisis. Medical bills, major home repairs, or sudden car failure can drain even the best savings accounts. It's OK to use your emergency fund for these things; that's why it's there. But if you deplete your account, don't immediately tap into your 401(k) or IRA for a quick fix. Except in a few special cases, like making a down payment on a first home, you'll pay a hefty penalty plus a load of taxes if you withdraw those funds early. Then, you can find yourself substantially set back in your long-term savings goals. It's a losing game.

How can you avoid this blunder? Live below your means and have a robust emergency fund. Typically, a three to six month emergency fund is sufficient. In the current economy, financial experts recommend keeping closer to a year's worth of cash on hand. Some have even spoken out in favor of filling your savings account with an emergency fund before paying down debt--so you have a cushion if your job disappears.

Mistake #3: Using the wrong savings account:

An easy way to boost your savings is to find the best savings accounts. If you're saving for a long term goal like retirement, home ownership, or your kids' college educations, tax-sheltered accounts can help you achieve those goals. For your cash savings, research the best savings accounts with the highest savings account rates.

How can you avoid this blunder? Figure out what you value most in a savings account. Is it the savings account rates alone? An online savings account may be your best bet. Do you care deeply about your local economy? Then, keep your money in a credit union or a community development bank. Have a long-term goal? Shop for a savings account that minimizes your expenses while offering an attractive yield.

Steering clear of these simple savings mistakes can help you stay on track for your goals, whatever they are. It's hard to go wrong with slow, steady savings in the right savings account.

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