Top saving mistakes to avoid

Saving for your future can feel like a daunting prospect. Some of this reluctance may stem from feelings of anxiety concerning smart saving decisions, or being overwhelmed by the sheer volume of choice available to you. Whatever the reason, don't fall victim to procrastination. Here is a list of the top 9 mistakes to avoid when you're building up your savings. The biggest mistake of all? Not starting.

What we mean: Think of saving as a regular habit, like paying rent.

Why not: If you don't work savings into your budget, you're likely never to do it. Nearly 40 percent of recently surveyed Americans reported no non-retirement savings at all. The easiest way to avoid ending up in this situation is to put a little money away each month.

How to avoid it: Deposit your paycheck into a savings account. From there, pay yourself with a transfer to your checking account. If you don't see it in your checking, you won't spend it—and you'll get used to living on less. Or, have your HR department deposit a portion of your paycheck into savings and the other part into checking.

Already made this mistake? Work savings into your budget now. Make sure to send money to your savings before you do any spending on groceries, entertainment, shopping or other everyday purchases.

What we mean: It's not safe to hold on to more than a few hundred dollars in cash. At today's interest rates, it's also not worth it to lock up your savings in a CD, which requires you to keep the money in the bank long term.

Why not: CDs offer slightly higher interest rates, but if you need to withdraw funds early, you'll pay a penalty that could cancel out any earned interest—and more. Plus, if you lock in interest rates when they're at rock bottom (as they were in June 2012), you won't be able to jump on higher rates when they inevitably start rising.

How to avoid it: Keep any money you might need in an emergency, or the immediate future, easily accessible—not trapped behind an early withdrawal penalty. Opt for a savings account. They offer similar rates to CDs and are more flexible.

Already made this mistake? If you've already started building your emergency fund in a CD, don't fret. It's not worth it to eat the early withdrawal fee just to get out of your CD. Just open a savings account now so you can continue to build your emergency fund while keeping it easily accessible. If you've already amassed your full emergency fund, then there's no need to transfer the money now. Hopefully, you won't need it until after you can withdraw it without penalty.

What we mean: Keep the account you use for saving far away from the one you use for everyday spending.

Why not: Having all your accounts under one roof can make tapping your savings tempting—and too easy. Plus, by sticking to just one bank, you could be losing out on better deals.

How to avoid it: Just open your accounts at different banks. For your checking account, look for everyday convenience. For savings, interest rates matter. For both, look carefully at fees. Also, don't forget smaller institutions.

What we mean: When it comes to special offers, look beyond the promotional period.

Why not: Many banks offer high introductory savings rates to reel in new customers. But they apply only up to a point, after which rates can plummet.

How to avoid it: It's fine to take advantage of sweet promotions. Just be sure to do the math so you really do get a good deal. At today's interest rates, cash sign-up bonuses (often $50 or $100) might net you higher returns than teaser rates.

Already made this mistake? If the promo period is over, and you're unimpressed with your new lower rates, switch accounts! Remember to read the fine print when you're signing up for the next one.

What we mean: Divide your savings into subaccounts with specific purposes, i.e. “emergency fund” or “car.”

Why not: If your savings are lumped into a single account, it's easy to accidentally  spend what should be for emergencies.

How to avoid it: Setting up separate accounts for goals like travel or home renovation will let you know if you can afford to attend a destination wedding without raiding your emergency fund or jeopardizing your trip home for the holidays.

Already made this mistake? Set savings goals and funnel your existing funds into subaccounts for each one. Your bank should let you do this for free. If not, look for a new one, because this feature is important! The account holding your emergency fund should take priority as you divvy up your savings.

What we mean: Keep a dollar target for each savings goal—and a timeline for reaching it.

Why not: Not having a firm goal for savings can help you justify dipping into savings, i.e., “I know I need a lot of money for my down payment, not sure how much exactly, but since I already have $15,000 toward it, it couldn't hurt to take out $2,000…” Not having a concrete number or deadline can also push you over budget if you don't know how much you need to set aside every month to reach your goal.

How to avoid it: Creating a deadline for how much you should set aside each month, and knowing that dollar figure, will help you see whether you really can afford to save that much in that time period. Calculate how much you need to save in how much time to reach your goal with this calculator. Stick to your budget while you're saving, so you don't go into the red for a week at the beach.

Already made this mistake? If you have general savings accounts, but no goals attached, figure out how much you want to accrue in each account. Your emergency fund should contain six months' worth of living expenses. For other goals, use our calculator to see how much you need to set aside to see if that will work with your budget. Remember that each goal should have its own account.

What we mean: Save and pay back your loans at the same time.

Why not: According to a recent poll, paying down debt is the most common financial goal for 2012 among employed Americans—especially for women. It may seem counterintuitive to owe high-interest debt while you have a few grand in the bank. If you drain your savings to pay off a loan though, one unexpected emergency could push you back into debt.

How to avoid it: Come up with a timeline to pay off your high-interest debt, but keep stashing away a small amount each month. If an emergency comes up, you'll appreciate having a comfortable cushion to fall back on.

Already made this mistake? Start rebuilding your emergency fund immediately, which should be easier now that monthly debt payments are out of the picture. Then, don't touch it, unless…

What we mean: Your emergency fund is off limits for that much-needed vacation, the new laptop you need or a down payment on a home. Use it only if you lose your job, have an unexpected medical expense or face another true emergency.

Why not: According to Bankrate.com, only one in four Americans have savings to cover at least six months of expenses. If the unexpected happens, you want to fall back on your savings, not a credit card.

How to avoid it: Separate your needs and wants. It's fine to use your emergency fund to repair your car so that you can get to work—that's what it's there for. Buying a newer model, though, is definitely a want.

Already made this mistake? Now that you've already used your emergency funds for a nonemergency, work again to build up a financial safety net of six months net pay (the post deductions income you actually see each month).

What we mean: Your savings rate should keep pace with your income and lifestyle.

Why not: As income rises, living expenses are bound to follow. What used to be an emergency fund with six months of net pay might only last five now that your expenses has gone up.

How to avoid it: If you get a raise and move to nicer digs or otherwise increase your monthly spending, increase your savings as well. Monthly essential expenses shouldn't add up to more than 50 percent of your net income. If your monthly expenses increase, contribute more toward your emergency fund until you can cover six months at your new net pay.

Already made this mistake? Build your emergency fund back up so you can depend on it for six months, if necessary. In the future, try to keep track of your expenses (one in five U.S. adults don't, according to a recent survey), because saving gets harder if you're not watching where your money is going.

1. Forgetting to make saving part of your monthly budget


2. Stashing your cash in a shoebox under the bed—or in a CD


3. Keeping your savings and checking accounts at the same bank


4. Being seduced by introductory rates


5. Keeping all your savings in one bucket


6. Saving without a goal


7. Cashing out your savings to pay off debts


8. Dipping into your emergency fund unless your health, job, living situation, or financial security is at stake


9. Falling victim to “lifestyle inflation”

Having a sound financial strategy is the best way to weather some of life's uncertainties. Many of the obstacles you think a savings plan presents can be overcome by avoiding these kinds of mistakes. Remember, the only right time to start saving is now.