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When people lack savings, it’s often caused by reduced or insufficient income, rising expenses, or a combination of both.
This situation can put people in a cycle of dissaving which may leave them overburdened with debt if they don’t take control. In this article, you’ll learn what dissaving means and the ways to avoid it.
What is dissaving?
Simply put, dissaving is when you have negative savings. It can happen when you’re spending more money than you’re earning.
If dissaving becomes a habit, you might find yourself dipping into the cash you put away for a different purpose or even borrowing money just to cover daily expenses.
How to avoid dissaving
There are valid reasons to dip into savings temporarily, like emergencies or job loss. Dissaving may also be appropriate for retirees who are living off their nest egg.
However, if you’re young and still working, habitual dissaving can put your financial and even physical and mental well-being at risk. Here are some steps to take to prevent dissaving:
1. Track your spending closely
To keep from overspending, you need a budget that outlines your income, expenses, and savings targets. Then, monitor your spending to know where your money goes.
If you’re failing to reach your savings goals, identify expenses which you can totally omit, where you can cut back to be able to redirect the money toward savings, and eventually investments.
2. Understand the “pain of paying” to rein in unnecessary expenses
When tracking expenses, you may discover problem areas like spending too much on wants. To address this, you can consider making it “painful” to spend your money by putting safeguards in place.
For some people, the pain of paying is stronger when they use physical cash versus cards or digital payment apps. One way to use this to your advantage is to only bring cash or the exact amount you need when shopping so you don’t go over your budget.
Others take stricter measures like keeping cards out of reach or removing shopping apps from their phones. While you might not have to go to such extreme lengths, it helps to know the methods that work best for you.
3. Automate your savings
To make savings a non-negotiable part of your budget, consider setting automatic transfers to a dedicated account each month or each payday.
If you don’t have one yet, start by building an emergency fund to cover unexpected expenses. This will keep you from falling into dissaving or taking out loans when you need extra money.
4. Consider ways to boost income
Additional earnings can be a big help when trying to save or grow your money. You may want to look into passive income sources like investments, or side hustles to supplement your cash flow.
Remember that managing your finances is a balancing act. Life’s uncertainty can throw you off balance, and so it’s important to build savings that will keep you standing on solid ground.
