Here the question is why you must save money? Different persons have different reasons to save money. There is financial, mental, and life related reasons for you to save money. You may save money for different other reasons, but saving is important and make it as a regular practice and a process of money management.
I have seen many persons who don’t have a savings account. Some persons have one but with zero balance or with minimum balance required for to maintain the savings account. Some follows an expensive habit in such a way that their savings account balance even becomes less than the minimum balance required in the account.
Saving is become important because future is uncertain. We can’t predict how much will be your income and expenses in future. Saving is one of the important steps in the financial management. If you are not having a saving category in your budget, your budget is incomplete.
Here I am pointing out ten common reasons for why you should have a habit of saving money.
1. As a cushion for emergency funds
Life is full of unexpected happenings so always expect a chance of occurring unexpected things which can cause unexpected expenses in life.
To meet such expenses we should have a fund called emergency fund. This emergency fund is a fund set aside to cover unexpected expenses. The unexpected expenses may be car repair, medical expenses, sudden job loss etc.
Now the question is how much you have to set aside for emergency fund. Ideally your emergency fund should be about six to nine months of your expenses.
Other than this emergency fund you should get into a good insurance plan which can meet some main unexpected financial events in your life.
2. Save money for your retirement
How much time you can earn like now? There is always a retirement time for all. Thus we need to put aside some money so that you will get an income after your retirement.
The savings work for you in getting an income after retirement. This is with the interest you are getting for your savings.
Thus sooner you start saving for retirement, the less you will have to save in future. As you contribute overtime you will be earning more interest on the money you have.
Most employers are having special schemes or systems for their employees for their retirement plan. So I suggest you to take part in the employer’s retirement plan. Also, depending on how much you can set aside, you should join any other suitable retirement plan with proper advice from a financial consultant.
You must at least contribute up to your employer’s match. It is more advisable to save at least 10 % of your gross income for retirement savings.
3. Save money for education
Another reason for saving money is education. It may be your education, your spouse’s education or your child’s education.
Many are going to colleges for their higher studies. New scope of distant education or online education or part-time education provides a great opportunity to get more education and knowledge.
Sometimes you may have to spend money for your spouse’s education.
Your child’s education is one thing you must not avoid. It requires money in future. The requirement of money will increase as years goes on.
You may get loan for education, but advisable is to save money for education and use it when it is needed. Loan and its repayment may disturb your money management and budget.
4. For a down payment for purchase an asset
Buying an asset of your own may be your dream. The asset may be a house, a car etc. A savings can make this dream come true.
If you need some loan for purchase of the asset, the savings will help you. If you can pay a significant down payment your negotiating power increases. You will receive better interest rates, and be able to afford a bigger house.
If you need a house, determine how much you can set aside for this purpose every month. It will depend on your circumstances.
Purchase of a car can be made easy with the savings. If you need a car, save for it every month.
5. Save money for sinking funds
A sinking fund is money you set aside for future repairs or improvements on your house, car and other possessions.
This fund will help you to stop dipping into your emergency fund every time you need to make improvement or repair your possessions.
6. Save money for entertainment
Another reason for saving money is to have fun and entertainment. Many will ignore this category from budget. I suggest you to keep aside an amount and enjoy life.
Now a day’s entertainment and outing with family is important. It will help to increase relationship among family members. A tour can relax your mind.
If you want to buy some luxury items, the savings will be a great help.
7. For positive financial psychological traits
Saving money is good for your financial well-being. When you start saving money and make it as a regular cash flow reminds you that this money is hard to earn and easy to spend.
This attitude and habit help you to respect the work and people who worked hard to acquire their lively hood.
When you start saving money you will understand how much work and effort it takes to save that money.
8. To increase your financial confidence
Money set apart as saving provided you with the needed capital to cover large unexpected events or surprises in today’s world.
This cover for unexpected expenses can increase your financial confidence. You may be confident in your expenses, your income etc.
9. Save money to decrease your stress
Money for unexpected expenses can decrease your stress. In other words you are prepared for the changes.
Chance of getting into financial problems is that one which can increase stress. A planned way for managing money with a part of your income set apart will always help you in overcoming difficult financial situations.
If you don’t have the habit of savings, you will compel to take loans to meet the unexpected expenses. Bank may provide you loan for 20% interest but your savings account can provide you needed money with an opportunity cost of less than 10%.
10. Save money to grow your wealth
A savings account with a correct plan for every month will help you in borrowing less. The interest expense is money you could have otherwise diverted towards paying down your mortgage, investing, saving more towards your retirement, etc.
Thus it can act as a part in increasing your wealth.
What ever the reasons for save money, saving is important and can change your financial situation. So open a savings account (if you not have one yet) and start saving money by depositing a part of your income in it.
Everyone should have a savings account. A savings account and a habit of saving money is a good habit. Your age or contribution level is not a matter or problem, have a habit of saving money is important.