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