10 reasons saving money is so hard (and how to fix it)

Why is it so hard to save money? I mean, clearly, it’s not all a lack of determination, as I’m sure you can attest if you have this difficulty. So what is it?

In this post, we’ll explore the many internal and external factors that make saving such a monumental challenge for many. Most importantly, we’ll discuss how you can take steps towards overcoming these pressures.

Why is it so hard to save money? Overview

According to MagnifyMoney, the average American household has $183,200 in savings (including bank and retirement accounts). That number is deceiving, though.

In fact, most personal wealth-related averages in America are deceiving thanks to extremely high-earners like Jeff Bezos that skew the numbers.

To gain a more meaningful understanding of the typical American’s financial situation, you have to look at median figures (read Naked Statistics for a detailed explanation). When it comes to household savings, the aforementioned MagnifyMoney study lists the median at just $12,330.

It gets worse.

Nearly 30% of Americans have less than $1,000 saved. Meanwhile, roughly the same percentage reduces their savings by more than $14,000 annually.

Things aren’t ideal in Canada, either. According to CIBC, 32% of Canadians between 45 and 64 have a whopping $0 saved for retirement.

Further, Statistics Canada reports that households across the country save an average of $852 annually. Remember, that’s the average; it includes top earners, which save more than $41,000 annually. The bottom quintile earners in Canada reduce their net worth by nearly $28,000 annually.

Why is it so hard to save money in two of the richest countries on earth, though? Let’s unpack that – along with the solutions – next.

10 reasons saving money is so hard (plus, solutions)

Note: This post contains affiliate links. I’ll earn a small commission if you purchase something through an Amazon link in this article, which helps me keep the site as ad-free as possible.

1. Poor financial literacy

A stack of books.

According to a BMO Wealth Management report, Canadian millennials – although better-educated than their parents – have absolutely horrid financial literacy. American data tells a similar story, with 76% of millennials lacking basic financial literacy.

This lack of awareness about personal finance can cause all sorts of problems that inhibit your ability to save. For example, someone who doesn’t know how compound interest works might use credit recklessly.

They might even do things that seem responsible but aren’t necessarily so, such as aggressively paying off a 0% interest car loan instead of making minimum payments and saving the excess in a high-interest account.

The education system gets a lot of blame for this, and rightly so. Fewer than 17% of American students are required to take personal finance courses. In Canada, meanwhile, experts have panned a similar lack of consistency in financial education across the country.

Solution: Take initiative – it’s your money!

While I’m definitely an advocate for more compassion in personal finance, that doesn’t make me fond of excuses.

If schools and your family members won’t teach you about personal finance, the solution is simple. You have to learn about it for yourself.

I mean, do you want to be happily retired at 65 or grumbling about how teachers who aren’t even alive anymore didn’t tell you about compounding interest?

Now is a great time to be learning about personal finance. There are so many amazing books, videos, and resources out there to get you started. I recommend that all beginners read I Will Teach You to Be Rich by Ramit Sethi. If it was the only personal finance book you ever read, you’d still do better in life than most people. Seriously.

2. Rising costs, stagnant wages

Many people also find it impossible to save money because they don’t have much of it left after paying basic bills. Drastic increases in living costs combined with stagnant wages play a major role here. Let’s look at the data.

American statistics on stagnant wages

According to the U.S. Census, American households in 1975 earned a median income of $11,800. Adjusted for inflation, that’s equivalent to just under $57,000 in 2020. Meanwhile, the U.S. Department of Housing and Urban Development reports median household income in 2020 as $78,500.

That’s really not much of an increase when you consider how living costs have grown since then.

According to the National Center for Education Statistics, undergraduate tuition, fees, room, and board cost an average of $1,983 in 1975. That’s $9,698 in 2019 dollars. American students today spend an average of $24,623.

Wanna buy a house? In 1975, you would have spent a median of $39,275 ($189,148 in 2020 dollars) according to data from the Federal Reserve Bank of St. Louis. Today, the same data indicates the median price is upwards of $300,000.

Based on these numbers, median wages in the United States have increased by 37.72% since 1975. Meanwhile, tuition and housing costs have risen by 60.61% and 58.61% respectively.

Canadian statistics on stagnant wages

Canada has not escaped this phenomenon, either.

Adjusted for inflation, Canadians earned a median of $31,300 in 1980 according to Statistics Canada. By 2018 (when the most recent data was published), median wages had only risen to $36,400.

Meanwhile, the average Canadian house in the early 1980s cost roughly $213,000 when adjusted for inflation, based on data reported by The Globe and Mail. Today, the Canadian Real Estate Association lists the average cost across the country at $571,471.

That’s more than double what you would have paid in the 1980s, despite median wages only having grown by $5,100.

Not only are many people in Canada and the United States unable to save as a result of these disparities. They often have to take on debt to afford basic things like housing and education.

Solution: Get a higher-paying job

Unless major policy changes arise, moving into a higher income bracket is the only hope most low earners have of seeing their wages rise in line with inflation. You see, the highest earners have consistently seen their wages rise faster than everyone else’s.

Of course, this is easier said than done. It’s something you have to do if low wages are behind your inability to save and invest, though.

Check out this article to learn about 25 decent-paying jobs that also happen to be recession-resistant. Some of them (like database administration) are relatively easy to get into as well.

3. Poor spending habits

A pocket full of credit cards.

It’s impossible to save money if you spend it first without thinking.

This isn’t a problem you can necessarily earn your way out of, either. Bad spending habits tend to scale thanks to something called lifestyle creep (more on this shortly).

Unfortunately, it’s super easy to fall into this trap even if you don’t have enough money to spend discretionarily. The modern economy is addicted to consumer credit that allows people to buy all sorts of luxuries they can’t afford.

I mean, right now I have access to $94,800 in credit, most of which I never explicitly asked for. Banks just kept raising my limits over the years, often without even asking.

Because I’ve gotten good with money, I can use that credit to improve my financial situation. I have an excellent credit score because I never carry a balance, for example. However, having that much credit can be disastrous if you’re an impulsive spender like I was just a few short years ago.

And that’s how people really screw themselves financially. They’re unable to save because they’ve spent their income and then some on useless things.

Solution: Get smarter about spending

There are many ways to approach dealing with a bad spending habit. I found success in replacing my frivolous purchases with more beneficial ones. For example, I started buying books that taught me about saving and investing.

The right strategy all depends on your situation, however. If you’re drowning in consumer debt, for example, you may need a more traditional approach to cutting expenses. Work with a financial planner/advisor to figure out what’s right for you.

4. Excessive consumer debt

It’s very difficult to save money when you have tons of high-interest debt hanging over your head.

First of all, you probably ended up in that situation as a result of habitually spending beyond your means. Most people can’t just flip a switch and change that behavior overnight. Secondly, the monthly payments required to service substantial debt can be quite strenuous.

Excessive consumer debt is a major problem in Canada, where the average person has more than $20,000 in non-mortgage debt. The average American is even worse, with $38,000 of non-mortgage debt.

The reason non-mortgage debt gets so much attention, by the way, is that interest rates on loans in that category tend to be much higher. Credit cards, for example, come with interest rates approaching (and sometimes exceeding) 20% while mortgages can be found well under 10%.

Double-digit interest rates on $38,000 in debt can make saving seem like an impossible feat for people earning modest amounts. The longer that debt sticks around, the worse things get.

Solution: Be calculated in tackling your debt

Debt will not just go away on its own. You need a concrete plan for eradicating it.

A credit counselor can help you determine the right strategy and whether you should be saving as you pay off debt. For example, you might still want to set up an emergency fund depending on your situation.

If you’re already doing your best to pay off debt yet still find things difficult, there are services like debt consolidation your counselor might recommend.

5. Lifestyle creep

A red sports car.

Many people are perplexed to find that earning more money doesn’t automatically lead to a bigger bank balance. Lifestyle creep is a common yet easily-missed reason for this.

The term describes the habit of immediately upgrading your lifestyle after receiving a raise or promotion. For example, you might go out and buy a fancier car, start shopping at upscale malls, etc rather than actually keeping some of that extra money for yourself.

There’s no limit to this. People build themselves up to earning millions of dollars a year and still die penniless.

At the other end of the spectrum, you have people like Warren Buffett. Despite being worth $82 billion – more than anyone could ever spend – he still lives in the same house he bought for $31,500 in 1958. Sure, he picked up a beach house for $150,000 along the way but that’s still absolutely nothing compared to what he could be doing with his money.

You don’t have to be that extreme. I mean, on the scale of wealth you and I inhabit, that level of frugality would mean never buying a new shirt. However, you do need to be conscious of what you do after earning more money.

Solution: Use your new money wisely

Whenever you get a promotion or raise, take a good look at your current standard of living and ask yourself whether it needs to change right now.

If you’re living in a cockroach-infested dump with an abusive roommate, maybe the answer is yes. However, if you’re safe, well-fed, and have dignity in your living situation, consider putting your new extra money to work by saving, investing, or paying off debt with it.

If you do this diligently, you’ll eventually be able to afford (and I mean actually afford, not buy on credit) much nicer things than you could with that raise today.

6. Not having clear financial goals

A Gallup poll from 2013 revealed that only 30% of American households engage in long-term financial goal-setting. When it comes to retirement planning, more recent polling shows that only 18% of Americans have roadmaps.

North of the border, a CIBC study found nearly half of Canadians similarly lack financial goals.

These statistics, on their own, explain a lot. I mean, why would anybody sacrifice nice things and experiences today if not to achieve greater fulfillment in the future? I wouldn’t – and, evidently, neither do millions of Canadians and Americans.

Solution: Identify important financial goals

Most of us don’t stumble our way into achieving big financial goals. It takes planning.

The first step is to identify important goals and the money required to achieve them. For example, you might identify $100,000 as necessary for a home purchase or $800,000 as a target for retirement.

Whatever the case may be, thoroughly research your goals and write them down. This will achieve several things. For one, you’ll actually have something exciting to save towards. You’ll also be able to monitor your progress and course-correct along the way.

7. Lack of budgeting

A closeup of a calculator with black, grey, green, and orange buttons.

Did you know that only 41% of Americans and 51% of Canadians stick to a budget?

The big problem with forgoing a budget is that you’re left to rely on your own willpower for progressing towards financial goals (if you even have any; see above). We all know that doesn’t work. The average American consumer coughs up $450 every month on impulse spending, with food being the primary culprit. That’s $5,400 a year!

Grocery stores are basically designed to facilitate this spur-of-the-moment spending. Just think about how smaller, cheaper items are strategically placed near cash registers.

Seriously, this is a science. Companies spend billions of dollars on research into human behavior. You’re not going to beat that with human willpower alone. A budget is a formidable defense.

Solution: Set a budget

You need to have a plan for your finances every month.

Now, I know budgeting can be a pain. I find it hard to stick to conventional budgets. Instead, I use what’s known as a reverse budget.

I mentally set a specific amount of money aside for saving and investing towards goals each month. Then, I pay the bills and cover other essentials. What’s left is mine to spend however I want. This is a very liberating approach, in my opinion.

Again, if you have lots of high-interest debt you may need to be stricter with yourself. Work with a debt counselor to identify the correct approach to creating a budget.

8. Improper financial tracking

While budgeting is the act of telling your money where to go, tracking ensures it’s actually following your directions. However, many people either ignore tracking altogether or have an unhealthy obsession with it. Both approaches limit your ability to save.

Not tracking your money at all leaves room for leaks. These are expenses that don’t garner attention in the moment yet would be inexcusable if you were paying attention. Think of long-forgotten subscriptions, duplicate charges, that sort of thing.

Without automated tracking, you also won’t know you’re over-budget until you actually tally up the numbers for yourself, which most of us will never do.

Conversely, being too obsessed about tracking focuses your attention and willpower on the wrong things.

The goal is not to pinch every single penny and beat yourself up for minor moments of weakness. Rather, it’s to identify inefficiencies that are hindering progress towards your most important goals.

Solution: Use tracking wisely

When it comes to tracking my finances, I like to zero in on key areas. Specifically, I focus on expenses I’m looking to reduce and savings targets I need to hit.

As long as I’ve chosen areas of focus that reflect my true priorities in life, I don’t need to worry about anything else.

My favorite financial tracker is Mint. It connects directly to your bank accounts, tracks progress towards goals, and notifies you of irregular transactions (including expenses, like bank fees, you should be negotiating away).

9. Peer pressure

An empty brown leather wallet.

Saving can be very difficult when everyone around you is being financially irresponsible.

This can take many forms. For example, you might feel pressured to go out and drink with your friends every Friday night. It might even be as simple as believing that if the people you respect most aren’t saving, you don’t need to be either.

This is a very common pitfall given the number of people with absolutely no savings. The average social circle has at least a few of these people.

Solution: Think for yourself (and find more productive friends)

Financial responsibility is a personal matter. Even the best of friends aren’t necessarily thinking about your goals because they have their own circumstances to worry about.

All you know for certain is your own situation. You need to make decisions for yourself and trust that true friends will respect – or perhaps even be motivated by – them.

Inevitably, though, some people won’t respect your desire to become more financially responsible. While these people may be good friends in some ways, they will always hold you down financially.

You can decide whether to cut these people off. At the very least, though, I would recommend adding some more productive people to your social circle. You’ll find they talk, think, behave, and spend quite differently than the average penniless individual – even when they’re having fun.

10. Unforeseen circumstances

Nearly half (49%) of Canadians responding to a Refresh Financial survey reported having no emergency savings whatsoever. Meanwhile, in the United States, a Bankrate poll found nearly 40% of respondents unable to cover a $1,000 expense without borrowing money.

Notably, both polls also indicate that many Canadians and Americans would turn to credit cards, in particular, for handling emergencies. This approach can have devastating impacts on your ability to save.

If you have no other option but to use a credit card in case of an emergency, chances are you’ll be carrying that balance for a while. This puts you at a substantial disadvantage thanks to credit card interest rates being in the ballpark of 20% annually.

If your circumstances make you particularly emergency-prone (i.e. you rely on precarious shift work or have a medical condition), you may find yourself in a very deep hole.

Solution: Plan wisely for emergencies

Many experts recommend creating an emergency fund large enough to cover your essential expenses for three to six months. This will shield you from many financial emergencies.

An emergency fund of this size will also serve as a robust foundation for your financial planning. It will prevent you from having to raid investment or savings accounts intended for other goals like retirement or buying a home.

It will also prevent you from having to rack up expensive debt that hinders your ability to make financial progress.

Why is it so hard to save money? Conclusion

Saving can be difficult for many reasons, including external factors like wage stagnation and personal ones like poor budgeting.

Whatever the case, however, there are ways you can counteract these forces and begin saving responsibly. I hope this article has done a good job of presenting these solutions so you can envision yourself employing them.

Speaking of which…

Ready to try saving? Start with $10,000!

Several piggy banks arranged in a circle.

Many people find $10,000 to be a great medium-term savings goal. It’s definitely doable within a year as well, even if you don’t make enough money right now. As long as saving that amount is in line with your priorities, there are ways to get around many of the roadblocks that hold people back.

Check out this article for a very detailed 12-month plan to save $10,000.

About the author

Brandon-Richard Austin

Brandon-Richard Austin is the founder of Rinkydoo Finance. He is an avid investor and digital marketer for startups and publicly-traded companies alike.