Saving money is something we all should do but we often fall foul of squirreling our hard earned cash because it doesn’t offer the sense of immediate gratification that spending does.
Learning to save money is an essential habit you simply need to employ to gain financial fitness and step toward financial freedom. Saving money can start with putting away as little as $5 a week. If you want to add a little bit of fun to your saving efforts, then take a look at the 52-week challenge. Many of you feel like you don’t earn enough to save but if you create a budget and look to reduce your living expenses you can without a doubt find money that will allow you to start saving.
Here are 7 essential reasons why you should save money:
1. Save money for an emergency
An emergency fund is arguably the most important reason to save money. I’ve written about the importance of saving for an emergency fund in the past, so I won’t dwell on the point. In a nutshell, Dave Ramsey recommends saving around $1,000 to be used purely for emergencies.
What, you ask, would be classed as an emergency worth raiding your saving for?
I’m glad you asked.
Check out these three questions that will help you figure out whether you’re truly sat on an emergency.
I can tell you from experience that emergency funds are truly a lifeline! It takes perseverance, as does saving for anything, to build up a fund. It also takes discipline to only use for true emergencies. I fell foul of using my emergency fund for the wrong reasons. I paid off a credit card in order to save interest and then had no money available a couple of weeks later to deal with a number of incidents that would have warranted dipping into my emergency fund.
Don’t make the same mistake! Save the money and keep it locked up for when you’ll need it.
2. Save money for bad times
Saving money for bad times is not the same as saving for an emergency fund. The emergency fund is $1,000 for immediate short-term problems. Money for bad times is generally called “6 months of savings” or “6 months of living expenses”.
Imagine if you will that you lose your job or you or a family member suffer an accident or health problem that reduces or cuts off your income.
What are you going to live off?
Yes, you could get a benefit of some kind, but they don’t always cover what you need if they even cover you at all. I know, I’ve been there.
In 2009 I suffered a major concussion that prevented me from working for a number of months. I was self-employed as an I.T. contractor at the time. My income dried up overnight because I could not work. I had no savings, I couldn’t afford to pay my mortgage, I couldn’t access benefits and I had no income cover. With two young children, it was a nightmare of a situation that could have been avoided with some forethought about savings.
The only way to survive whilst I recovered enough to return to work was to freeze our mortgage and live on credit cards. It was far from ideal. The stress exacerbated my symptoms and the pressure to return to work early hindered my recovery.
Fast forward 12 months, my concussion symptoms had subsided and, it turned out, I had crushed a disc in my neck as part of the same accident. This crushed cervical disc was rubbing on my spinal chord. Already debt-laden I had no choice but to work through the increasing pain. It went from intolerable to excruciating within months but I had to push through the pain and work for 12 months until I finally had a surgery to remove it.
I would not wish this level of pain on any living soul. It went beyond intolerable and no doubt was made worse by being at work. The stress and pressure in times like these can lead to all kinds of symptoms and ailments, including depression, which can become a downward cycle in themselves.
This, ladies and gentleman, is why you should save up enough money to ensure you can pay your reasonable living expenses for at least 6 months. Having that breathing room to recover would have been a life saver for me. If you lose your job it means you have time to find something without worrying about your home and your family.
3. Save money for College
If you’re young and soon to be heading off to College or University then saving money ahead of the game is the savvy thing to do. I was pretty good at saving money for college and doing so made my experience so much easier and a hell of a lot more fun! It will reduce your need to take out a student loan which you’ll likely end up paying off for a very long time.
If you’re a parent then it’s wise to put some money away for your child’s college fund as soon as you can. College education is becoming more expensive by the year. Saving for a college fund will reduce your son or daughter’s need to take out an expensive student loan to pay for tuition fees. If they complete college without student loans hanging over their heads you will be giving them the best opportunity to make headway on saving to buy their own house once they finish.
4. Save money for a house
It’s a dream many have, to own their own home. I have to say, there’s no greater feeling that buying your own place and calling it home.
Buying a house at the right time can be one of the best decisions you’ll ever make, particularly if it goes up in value. Many of us will be unlikely to save enough to buy a house outright, and really, why would you? Consequently, you’ll require a mortgage. In many cases having a large deposit or down payment means you can access better mortgage deals. These deals can include cash back offers from your mortgage provider or reduced interest rates. You will be able to access these because your lower loan to value ratio means you are a lower risk to lend money too.
5. Save money for travel
Who doesn’t love traveling? I’d love to go and see the world more than I have. Being financially fit and having savings in place means that you are freer to satisfy your Wanderlust. Travelling doesn’t need to cost a fortune. Many find ways to travel on the cheap, or even for free using credit card rewards and fly buys.
6. Save money for financial freedom
This is my ultimate goal.
To wake up in the morning and feel like you have options. To feel free as to whether you have a job or stay in a job, to travel or stay at home. Saving enough money to live a lifestyle that gives you a sense of freedom is a reason in itself to start saving.
This kind of freedom may not be possible by saving alone. My view is that you should create passive income streams to support a lifestyle that you would be happy with so that you are not dipping into savings. Indeed, you should be creating a flow of cash that not only supports such a lifestyle but continues to allow you to save for the future.
7. Save money for retirement
And this is the future you want to save for. Because who wants to be old and incapable and have no money?
We’re all going to get there. With a bit of luck, you’ll have saved enough cash, and created passive income streams, to allow you to retire early so you can enjoy your final chapters to the fullest before you become incapable. Having a decent level of savings for a time when you go well over the hill means you’ll have funds to get some quality support and care.