The Importance of Saving Money

We save, basically, because we can't predict the future. Saving money can help you become financially secure and provide a safety net in case of an emergency.

Here are a few reasons why we save:

• Emergency cushion - This could be any number of things: a new roof for your house, out-of-pocket medical expenses, or sudden loss of income. You will need money set aside for these emergencies to avoid going into debt to pay for your necessities.
• Retirement – If you intend to retire someday, you will probably need savings and/or investments to take the place of the income you'll no longer get from your job.
• Average Life Expectancy – With more advances in medicine and public health, people are now living longer and needing more money to get by.
• Volatility of Social Security – Social Security was never intended to be the primary source of income and should be treated as a supplement to income.
• Education - The costs for private and public education are rising every year and it's getting tougher to meet these demands.

Without money put away in savings and/or investments, you open yourself up to other risks as well. For example, not having enough money to pay for emergency dental care may force you into taking a loan that your savings might otherwise have covered.

How much can you potentially save?

It’s important that you develop a budget using your net income as it reflects your take home pay after taxes and dedications. A common mistake people make is developing a budget off of their gross income. It’s a mistake because you're budgeting money you never possessed. Remember your potential savings is the difference between your net income and your expenses.

When developing a saving plan ask yourself these questions:

• Are there any variable expenses that you can reduce or eliminate?
• Is there anything you spend money on that you could eliminate and apply towards saving?

Tips for saving money:

• Save windfall income – Any unexpected money such as income tax return money.
• Collect loose change and deposit it in the bank – Use a piggy bank and deposit its contents when its full.
• Try frugality – Purchase cheaper off brand items and save money.
• Break a habit – Try doing one less thing you expensive venture a week and apply that money to your savings.
• Save lunch money – According to a study by Forbes Magazine, Americans on average spend $1000 annually on going out to lunch. Bring your lunch to work and invest that $1000 in yourself.
• Have a “buy nothing week”.
• Compare costs of major items before purchasing anything – Do your due diligence, shop around before making major purchases.
• Use coupons – Coupons are a great way to reduce living expenses.

Sources: InCharge Debt Solutions and the Federal Trade Commission