We often save money when we feel the need to create a safety blanket because we are unclear about the predictability of our futures. However, there are many other reasons why saving money is important. In this post, we will take a look at some of those reasons.
What is Saving Money?
Savings by definition is not just the act of deferring the spending of funds, it also refers to setting aside an accumulative amount of money for a specific goal. There are many methods of saving which include, deposit accounts, investment funds, and even plain old cash.
However, other methods of saving can include, reducing the cost of recurring costs, such as cutting back on utility costs, cable bills, and such.
Why is it difficult to save?
Money is one of those things that is really easy to let go but very difficult to hold on to.
So why is it difficult to save money? This is a question, I have often asked myself.
When you start to dig into the answer to this question you will find that the difficulties of saving money often lie in your spending habits. If you have a difficult time keeping track of your spending you will have a harder time saving it.
The first time I tried to save money many years ago, it was very slow and very difficult. I didn’t have a plan and I did not track my expenses.
Colorful Monthly Budget Planner DownloadDid you know that the average American’s monthly expenses are $5,102? Which is more than the average monthly income?
Not to mention, we are only saving less than 5% of our disposable income.
What exactly are we spending our incomes on?
Here is a chart of the items that most American’s spend their incomes on.
Housing$1,67432.8%
Transportation$81315.9%
Personal insurance and pensions$60811.9%
Health care$4148.1%
Groceries$3727.3%
Restaurants and other meals on the road$2885.6%
Entertainment$2695.3%
Other$1693.3%
Cash contributions$1573.1%
Apparel and services$1563.1%
Education$1172.3%
Personal care$641.3%
TOTAL SPENDING$5,102
Why Is It Important to Save?
So with so many of us spending our incomes on so many expenses, that leaves us with little to no money to save. However, saving money gives you the financial security you need in life in a world full of unpredictability.
There are many other reasons saving money is important but here are the top reasons why you should save:
Financially Independence
Everyone wants to be independent, even my 11 years old at times thinks she is grown and can do things on her own. But to be financially independent would give you the ability to make choices in your life that doesn’t leave you depending on your paycheck.
With a proper savings you would be able to purchase items without having to use a credit card, take your family on vacation when you want, start a business, help family members, or take a few days off of work. Decisions like this make financial independence a bit more worth the effort you have put into the expenses you may have sacrificed.
Yeah, it isn’t the same as being rich, but with the right choices and investments, you can definitely take some of the stresses off of you and make you feel emotionally rich.
To learn more about financial independence, check out Jonathan Chevreau’s popular (and easy to read) novel, Findependence Day.
Buy a Home
Buying a home will require you to pay a down payment which needs to be at least 5% of the purchase price of the cost of the home. Getting a loan from the bank for your home will require you to have this money.
There are ways to get around this however!
But, in the case that you need this down payment, having savings will help open this door for you and make it easier for you to own your own home. Plus, there may be an additional cost you will need when purchasing your home.
Buy a Car
Just like home buying, a down payment on a car is often needed to help you get a reasonable interest rate on a car loan. So the best you can do is to save up a large down payment which will open the door to more options for you.
Get Out of Debt
One of the hardest things to get out of once you are in is debt. The only way to truly get out of debt is if you have enough money saved.
However, most of us find ourselves stuck in the continuous cycle of using our credit cards which makes it impossible to pay them off. So in order to pay off these credit cards, it is best to have what is known a “reserved fund” so when unexpected things come up you can use that money instead of those credit cards.
Annual Expenses
Saving money throughout the year will also allow you to prepare for what is known as annual expenses such as, holidays, vacations, vehicle maintenance, property taxes, etc. Without saving for these expenses, it will leave you tempted to reach for those credit cards or may even have you looking into other dangerous ventures like refinancing your mortgage.
So the better option here is to save ahead of time, that way you can be stress-free knowing that when these annual expenses come up, you will have the funds to take care of them.
Emergencies and Unforeseen Expenses
The future is very unpredictable and with it, emergencies and unforeseen events will happen. This makes preparing all the more important. What happens if your car breaks down, a family member gets ill, or you need a new refrigerator?
Without an emergency fund, all of these emergencies can be expensive and very stressful for you and your family. So it is best to prepare ahead by budgeting money each money to set aside for your emergency expenses.
You Could Lose Your Job or Get Hurt
If you work from paycheck to paycheck then you may have a better realization of how much your family depends on your job security. But there are often times when we can take for granted the fact that a sudden job loss, becoming sick at work, or even getting injured on the job (either physically or psychologically), would be devastating on our family’s income if we found ourselves suddenly without work.
Would you have enough money to hold your family over during this crisis? Would you be able to pay your rent while waiting for the Emplyment Insurance (EI) to kick in?
These are all many reasons to start saving.
Relieve Stress
One of the number one reasons for stress in many families is financial stress and this type of stress has been linked to a number of health problems. Of course, the more money you have doesn’t mean you are free from worry.
When you don’t have a plan, you are more likely to worry about your future. There are so many things that can happen unexpectedly in the future that we have no control over and this can be a great cause for anxiety.
Planning will alleviate some of this anxiety by giving you a little more control in your life.
“If you fail to plan, you are planning to fail!”― Benjamin Franklin
How to Get Started Saving
Many of us struggle to save money. You may think you don’t make enough to start saving and that may be the case but remember a penny saved is a penny earned.
Here are a few tips to help you get started with your saving, for more tips visit here.
Start paying off your debts first.
Put away your credit cards so you are less tempted to use them. Only take the cash you need with you to the store.
Start small.
Save what you can. Even starting with a $1 a week is still a start.
Separate your savings.
Make savings for each goal, emergency fund, annual expenses, house, car, etc. You separate savings account for your goals to make things like automation much easier. This way you can use tracking tools for each account to stay on track with your goals.
Set a savings goal.
Set a realistic goal for each fund (i.e, save 100 a month for emergency fund).
Save together.
A family that saves together has a better chance of being successful at their goals. It is not just one person who is responsible for the spending so it shouldn’t be just one person responsible for the saving.
The Last Thing You Need to Know About Saving Money
Saving money can often be difficult both with the proper planning and tracking of your spending you may be able to say more than you imagined. Use a monthly budget planner to keep a track of your expenses and income, then you can make savings goals accordingly.
Remember to start small and make saving a family effort. You will not only have a better chance at reaching your goals but you will also be teaching your children valuable lessons on how to handle money.