Is it Important to Save Money?
For most of us, saving money is a lesson we learn at a very young age. At some point, our parents refuse to buy us a new bike or a toy we’ve had our eye on and no amount of whining changes their position. Eventually, we’re told to save up and buy it for ourselves if we really want it. We may sulk for a while but, after a few months of pocketing birthday and Christmas money, we have everything we need and we make our first big purchase. In retrospect, it’s really not that hard to do (mainly because our parents are still paying for our other expenses), but as we grow up, our wishlist becomes more and more expensive and ancillary costs begin to pile up. Before we know it, saving money becomes almost impossible as we simply try to keep up-to-date with our monthly bills. But is this really such an issue? Is saving money vital or just something overly cautious people do? And how much do we need to save anyway? Is it Important to Save Money?
While financial experts tend to argue over the exact amount, they normally agree that saving money is an important venture that can pay off in a surprising variety of ways.
Although it may seem counterproductive to put aside money for the future when you could really use it now, the risks incurred by ignoring this advice can come back to bite you when you least expect it.
To prove our point, let’s look at a few examples in which a little bit of saving can do wonders when disaster strikes
By failing to prepare, you are preparing to fail– Benjamin Franklin
Why is Saving Money so Important?
Saving money each month is probably the best example of a proactive mindset rather than a reactive mindset.
Simply put, a person who puts aside some money every now and then is thinking about the future and the potential dangers that may pop up down the road. By contrast, someone who neglects their savings is going to have it that much harder when times get tough.
Reasons to Save Money
|Emergency Funds – No matter how well you plan things out, there will always be some unexpected tragedies that seem to hit at the worst possible moments. Although saving doesn’t completely drain the stress from such a situation, it does provide some measure of comfort to those affected.
Imagine that your car suddenly breaks down, or that an accident leaves you in the hospital for a few days. Individuals who have been smart about their savings will be able to dip into their ‘rainy day funds’ and will thus cushion the financial blow to their wallets. Meanwhile, the people who avoided saving will quickly have to look for money wherever it can be found. This point brings us to our next money-saving incentive.
|Avoid Unfavourable Loans – If you find yourself in one of the aforementioned predicaments without some spare money lying around, you may be forced to borrow some money just to get by. The issue with this plan is that interest rates on these sorts of emergency loans are usually quite high but, due to your situation, you can’t refuse them.
Sadly, this leads to a knock-on effect wherein sudden unforeseen problems can hound your finances for years to come as you slowly attempt to pay back a loan with an extremely high-interest rate.
|Big Purchases – This is another area where clever savings can be used to prevent paying unnecessary interest. Relatively large expenses such as vehicles and cell phones often come with high-interest rates if you pay for them in instalments.
This means that you end up paying even more money than you should in the long run. If, however, you manage to save up enough cash, you may be able to make a once-off purchase and avoid the interest altogether.
|Retirement Funds – This one is often overlooked by younger individuals, probably because their retirement seems so far away. In reality, life can creep up on you quite quickly and saving up for your retirement when you’re younger can be a boon when you finally give up work.
It’s important to remember that the sooner you start saving for your retirement fund, the less pressure you’ll experience in your later life.
|Prevent Mental Strain – This may seem like an odd addition to the list, but many people tend to underestimate the stress that can accompany an unstable financial situation. Even if you manage to overcome a disaster without proper savings, you’ll probably end up wishing that you had put some money away just to have made the whole ordeal less challenging.
Do I Need to Save Money?
Most experts would agree that, yes, you should have at least some money saved up for the future. While you may encounter a few lucky individuals who live life day-to-day and tackle problems as they come without the help of any savings, it’s safe to say that most of us will need a little bit more reassurance as we go on living.
As we can see, saving money is essentially a present that your current self can put aside for your future self. It may be tough to keep at it and the sacrifices you make could be extreme, but 9 times out of 10, you’ll be glad you took the initiative.
How Much Money Should I Save Every Month?
This is where things start to get a bit hazy. While there is broad agreement that saving money is a worthwhile endeavour, most people can’t agree as to what exactly is the right amount to save.
Many experts suggest splitting your paychecks into parts and allocating money to different areas with a certain percentage going into your savings each month.
One famous example of this would be the 50/30/20 rule which would see 20% of each month’s paycheck going into your savings once necessary debts have been paid off.
Others suggest something closer to 10% being put towards savings as you budget for the future.
At the end of the day, each person will have to do their own research into budgeting and determine what exactly is the best amount for them to save after they’ve considered their own finances. That said, it is generally accepted that you should always have enough money to cover 3-6 months of expenses at the very least.
What is a Good Monthly Budget?
A good monthly budget is going to depend heavily on the individual in question. Certain loans, family expenses and unforeseen mishaps are all going to impact your budget, so coming up with an exact breakdown will be difficult.
It’s probably wiser to look at the fundamentals of budgeting and follow them as closely as possible. When dealing with a monthly budget, the following points should be prioritised –
- Treat Each Month As Unique – Different months have different costs attached to them. Just because a certain budget worked last month, it doesn’t necessarily mean that it will work again this month. Take your current factors into account and make sure that your budgeting techniques are pliable.
- Plan For Emergencies – As mentioned, bad things can happen that you just aren’t ready for. If you end the month with some extra cash in your pocket, it may be tempting to go out and treat yourself, but it’s probably better to save it instead.
- Don’t Procrastinate Over Your Bills – Because of their interest costs, debts tend to increase in intensity over time and the longer you go without paying them, the more harmful they can be. With this in mind, it’s normally a good idea to pay off these bills when you can, rather than waiting for them to accumulate.
In Conclusion – Why is it Important to Save Money and How Much Should I Save?
Saving a little bit of money every month can be a great way to reduce stress while creating a financial safety net for the future. Due to the various unforeseen circumstances in life that can require some serious capital to overcome, it’s always a good idea to have some cash stored away just in case.
By gradually building up a rainy day fund, you can ensure that you won’t be blindsided by disaster and that certain obligations will be easier to fulfil when they crop up. If, for example, you are forced to spend a few nights in the hospital, a small stockpile of cash can be of great use when it comes to paying the bills. Additionally, such stockpiles can allow you to rest easy at night rather than worrying about what you’ll do or how you’ll cope when troubling times occur.
Saving can also allow you to make once-off payments in certain situations which would normally require you to borrow money. This can be helpful as you will not need to incur unfavourable interest rates on last-minute loans. Similar loans may also be needed when unexpected problems occur and these can again be avoided if pragmatic saving has taken place.
The exact amount you should save each month will be highly contextual and does not necessarily need to be consistent from month to month. Instead, you should find a budgeting plan that works for you and try to make incremental gains as you move through life. Many experts suggest that around 10-20% of your paycheck should go into your savings each month while most agree that you should always try to have around 3-6 months worth of expenses saved in case of disaster.
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