Why it's important to save money
If you missed the chance to reset your financial habits in your new year’s resolution train, here is a piece of good news: there is no wrong time to start making healthy financial habits. The importance of adopting healthy financial habits cannot be over-emphasised. Whether you want to achieve financial freedom or get out of debt eventually, it starts with developing good money habits. One of the essential financial habits you should adopt this year is saving.
In this post, we will discuss several exciting things you should know about saving, including some of the top reasons to save money. Saving should not be confused with investing. While investing is simply buying assets that you think you can sell at a higher price in the future, saving is the process of setting aside a portion of your current income for future use. Saving can assume several forms, such as bank deposits, increased cash holdings, and more.
Udah Desmond
Unlike investing, which helps curb the harsh effects of inflation, saving is often susceptible to inflation. Nevertheless, there are several compelling reasons to save, making it one of the healthiest financial habits you should embrace.
But you may be wondering: “it is super easy to access loans these days; why would anyone want to save money? There is a wide variety of reasons to start or increase your savings. Different people save money for various reasons, but in general, saving would always be beneficial in the future.
Top reasons to save money
Saving money for emergencies
Life is full of uncertainties; it is almost impossible to predict the sudden financial need that would arise the next minute. As much as we do not want these emergencies, we can only hope that they don’t happen. But we must be prepared for them. For example, a family member might need urgent medical attention, or your car may develop a sudden fault.
Some of these emergencies can be expensive, and they are likely to happen occasionally. As a result, you should ensure that you have some amount saved up somewhere at every moment.
It is financially dangerous to spend all you have without having substantial savings.
Saving helps you to set some funds aside to cater for those unforeseen expenses that may arise at any time. In addition, having some funds saved up for these emergency expenses would save you from borrowing when such a need arises (no pun intended) .
Saving money for your retirement
One of the most common reasons to save money is to prepare for your retirement. Your major sources of income are more likely to reduce significantly when you retire from active service. The best bet to plan for such a period is by saving up some funds to cater to your basic needs. There is little or no risks involved. The sooner you start saving for retirement, the less you will have to save in the future.
When you save money for future use, such as retirement, it has the potential to appreciate and earn some interests too. This can compound into a huge amount over a long period of time.
Since retirement is a long-term saving plan, you can choose an amount you think you can save regularly, usually a percentage of your income, and stick to your savings plan. A good amount is 20% of your income, but you know what is a reasonable amount for you. The most important thing in saving is to be disciplined and consistent.
Saving money for financial goals
We all have those big financial goals we aim to achieve; however, not many people know that having a healthy saving plan can help them reach those goals easily.
With a good savings plan, you can seamlessly achieve your big financial goals, like saving towards a house, a car, school tuition, a business you want to start, and more.
Based on your circumstances and other savings goals, you can determine how much to save toward a financial goal each month. Fortunately, some personal finance apps allow you to create a separate account or virtual wallet for your financial goals and remit a given amount into it regularly. Also, some financial institutions will enable you to lock up funds you don’t want to be tempted to touch in a fixed deposit account for a specified period of time. This is an exciting way to achieve your financial goals quickly.
Saving money to increase earning
Earning interest on your savings is one of the most exciting things about saving, especially when you save with a financial institution. You can earn compound interest on your savings too over a long period of time. While it may take some years to see the significant effect of compound interest, it is a powerful practice that can help you build significant wealth over time.
Saving money to reduce financial risk
The more money you have, the less risky your financial situation will become. Since saving is a good way to accumulate money, it could help increase your net worth and reduce your overall financial risk.
For example, if you have $10,000 and invest $6,000 to start your own business, you just risked 60% of your net worth. However, if you increase your net worth to one million dollars by saving more, then spend $60,000 to start a company, you only risked 6% of your net worth. The implication is that saving minimises your overall financial risk.
Key Take-Aways
- Different people save for various reasons
- Saving helps you to set some funds aside to cater for unforeseen expenses
- The sooner you start saving for retirement, the less you will have to save in the future.
- Saving helps you to achieve your financial goals
- Saving minimises your overall financial risk.
Conclusion
Overall, saving is a healthy financial habit that can help you build wealth over time and become financially responsible. However, since many people save for different reasons, you should be deliberate be specific when saving money. Whether it’s saving for retirement, reaching financial goals, or getting out of debt, saving comes with exciting benefits. And as such, you owe it to yourself to prioritise saving today.
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