Have you ever set aside a small amount of money, only for something unexpected to come up and take it away? There are many factors that affect savings, such as poor budgeting habits, unexpected expenses, or perhaps a salary that has been stagnant for a long time. So, we have created this simple guide to answer a question we often hear today: "Why can't I save money?" We'll list common saving challenges and offer practical solutions.
Rising cost of living
Inflation has a big impact on your savings. It affects the purchasing power of your money. If your savings stagnate or grow at a slower rate than the inflation rate, you could actually be losing money — and it might not even be noticeable at first. Once you spot it, you will see that you are not able to buy as much as you used to. This can lead you down a treacherous path of opening more lines of credit just to support the lifestyle you’re used to.
How to reduce the impact of inflation on your savings
There are options that can grow in line with, or even outpace, inflation.
One of the most effective ways to do this is through medium-to-long-term investments, typically for five years or more. Unlike cash savings, investing gives your money the chance to grow at a higher rate. For example, while recent interest rate increases may seem encouraging, they are still below inflation, meaning the actual purchasing power of cash savings may erode over time.
If you haven't already, consider investing in options like a retirement plan, building an emergency fund with at least three to six months of living expenses, or investing in stocks.
Investments do carry some risk, true, but they have also historically provided higher returns than simply stuffing wads of cash under your mattress. You can reduce the risk by diversifying your assets (
having different types of investments).
High debt burden
Debt is one of the main reasons why many people can't save money. Many will have the urge to pay the debt off rather than put it into savings. A type of debt that typically prevents a person from saving is
credit card debt. It has the highest interest of all debt types, and interest rates on some types of credit card accounts can change, meaning you owe more interest than you thought. This is known as revolving debt.
The current medium average interest rate on credit cards, according to Investopedia, is
24.62%. In addition, US household debt was at a record high in early 2024. The debt included mortgages, student loans, credit card debt, and personal loans to the Federal Reserve.
How to reduce the impact of debt on your savings?
Since you want to be debt-free, you will need to
start managing your debt more effectively. There are good options, such as
debt consolidation, when multiple debts are placed into one, often with a lower interest rate. Consolidating credit card debt with a low- or no-interest card or a personal loan with a lower rate can be an effective solution. Then, we have the option of refinancing the debt, such as a loan with a lower interest rate. Besides that, if you look at some budgeting strategies, they advise that you always prioritize
paying off high-interest debt first.
Lifestyle inflation and social pressures
Have you ever felt like your income is increasing, but suddenly, your tendency to spend is following? This phenomenon is called "lifestyle inflation." It's like when your friends invite you to a high-end restaurant you wouldn't normally go to, but you go anyway, or when you frequently buy the latest gadgets. Though this way of spending can give you instant gratification, it leaves little room for savings.
Besides that, there is extra pressure through social media. We all use social media, but often without realizing that it is like a parade of carefully selected lifestyle images that are most often very far from reality. This can be where the comparison trap lies. We can very quickly find ourselves overwhelmed trying to match the lifestyles of others, and it can be some time before we realize it isn’t feasible.
Lifestyle adjustment solutions
If you've ever felt this way, put your needs in the first place and your wants aside. Pause and detach yourself from your favorite influencers, and take a moment to think about what's important to you only. Think about your goals, achievements, and failures, then imagine your future. Try writing down your short-term and long-term goals. Create a spending plan that fits them, and commit to it.
Lack of emergency funds
We all have unexpected expenses every year. A part of your car may break down, and you have to pay $800, but you may not have the funds for it, so you’ll have to dip into the money intended for something else. That is very inconvenient and far from saving.
Do you have an emergency fund? If not, think about setting aside money for it. Do it like a test to see how helpful it will be.
Every household should have an emergency fund because it acts as a financial buffer that can cover unexpected costs. Build it before moving on to other savings goals — your future self will thank you.
Practical steps to build your emergency fund
The first thing to do is to set a small goal of perhaps $500 or $1,000 to reach by saving. As you set aside smaller amounts of money over time to meet your goal, you'll see how valuable this exercise is.
But if you find yourself in a situation where you have no more money to put aside for your emergency fund, you can always
temporarily cut back on your spending. Try making minor cuts to discretionary purchases, such as dining out or subscriptions. Then,
put the money you save into your emergency fund. When the time comes, and you do spend it on some unexpected course, prioritize filling that fund as soon as possible.
Stagnant salary and underearning
It can feel frustrating when your salary no longer covers all your expenses. Do you often find yourself waiting for your next paycheck because you don't have much left from your last? If this sounds familiar, you're not alone. A stagnant salary is a common challenge for many, as expenses like rent, groceries, and even insurance keep rising.
How to increase your earning potential
If your budget alone isn't enough to cover your expenses, a side hustle can save you. Many people turn their hobbies or skills into extra income. Then, looking at the long-term solution, investing in your professional development can open the door to higher earnings. Look into certification programs, online courses, mentors, or skill-building workshops that align with your career goals.
Get a look at your resume and networking, and see if they need upgrading to land a higher-paying position. If you love your current job and don’t want to quit, why not talk to your employer about a pay raise? Every dollar can make a difference!
