No matter where you are on your financial journey, you need to know that it’s possible for anyone to turn their financial life around. Sometimes all it takes is that first step in the right direction to get things moving in your favor. But, as with most things, sometimes that very first step is the hardest part. These days, in our world of instant gratification, it’s more important than ever to be able to stay focused on saving money any way you can. It’s really something that has to stay on your radar at all times. I’ve found it takes tons of self discipline. It’s so easy to drop the ball (over and over and over) and before you know it, you’re 50 yrs old and have nothing saved.
So why is saving money important?
If you don’t earn much and you can barely pay your bills, the idea of saving money might seem laughable. I can remember saying “what’s the use?” When you only have $5 left at the end of the month, why even bother to try saving? Because everyone has to start somewhere, and if you work at it, your financial situation is likely to improve over time. Saving money is worth the effort. It gives you peace of mind, it gives you options, and the more you save, the easier it becomes to accumulate additional savings. Americans are not known for their prudent saving habits. Several factors such as stagnant wages, rising expenses, and a general lack of financial knowledge keep many people from building a significant nest egg for the long-term. However, there are plenty of reasons to get motivated and find a way to save more money.
Peace of Mind (priceless)
Who hasn’t lain awake at 4:00 a.m. wondering how they were going to pay for something they needed? If money is really tight, you might be wondering how you’re going to pay the rent next week or your electric bill. If you’re a little further up the financial ladder, you might worried about how many months you could pay the bills for if you lost your job. Later in life, the money thoughts that keep you up at night might center around paying for your kids to go to college or having enough money to retire. These are all serious situations.
As you accumulate savings, your financial worries should slowly fade, as long as you’re living within your means and NOT spending more than you earn. If you already have next month’s rent taken care of by the first week of the current month, if you know you can get by without work for three to six months, if you have savings accounts for your rainy day and emergencies and your own retirement that you’re regularly funding, you’ll sleep better at night. The reduced stress from having money in the bank frees up your energy for more enjoyable thoughts and activities.
A survey from Ally Bank found that saving money is one of the best habits people can take to increase happiness. Among those polled with savings accounts, 38 percent of people said they felt extremely or very happy. In comparison, only 29 percent of those without savings accounts felt the same way. Overall, 84 percent of people said saving money makes them feel good — ahead of eating healthy at 74 percent and enjoying work at 68 percent.
The more you save, the more likely you are to be happy. Of those who said they felt extremely or very happy, 34 percent had less than $20,000 in savings, while 42 percent had $20,000 to $100,000 in savings. Furthermore, 57 percent who felt happy had $100,000 or more in savings. “The connection between the size of your savings account and your level of happiness may seem obvious. But here’s something that may surprise you: saving money actually affects happiness more than how much you earn, according to Ally’s survey.
Money Working for You
Most of us put in hundreds of hours of work each year to earn most of our money. But when you have savings and stash your funds in the right places, your money starts to work for you. Over time, you’ll need to work less and less as your money works more and more, and eventually, you might be able to stop working altogether.
What does it mean to have your money working for you? When you’re first starting to save, you’ll want to put your money somewhere safe, where you can access it right away for unforeseen expenses. That means an online savings account, where you might earn 1% interest annually and not even keep up with inflation, which tends to run around 2% to 3% per year. You’ll even have to pay taxes on your meager 1% earnings. Anything is better than earning 0%, though, or not having savings and going into credit card debt, which will cost you 10% to 30% in interest per year. I would suggest a Roth IRA for a much better rate of return. For an actual emergency you could withdraw any amount of your contributions without tax or early withdrawal penalties. Although a Roth is actually for your retirement, it can come in handy for emergencies.
You’re not sidelined by unforeseen costly repairs
Accidents happen and things break, usually at the worse times. Don’t let car repairs or home projects break you financially. Set up a savings account to cover these types of expenses and you’ll be able to make them without living on bread and water to do so.
Putting some money away regularly is the best way of saving up for expensive things, like a holiday, car, or a wedding. It can also be a good way of making sure you have money to pay for emergencies such as needing to replace an expensive household item.
You can also save money for the long-term, such as retirement. It can be difficult to think about doing this, especially when you’re young and retirement seems a long way off. If you’ve got money to spare, it’s tempting to spend it on things you want to buy and do now.
But it’s a good idea to think about whether you’ll have enough to live on when you are older and no longer earning money. Think about the kind of lifestyle you want and how you are going to pay for it. You may need to sacrifice some spending now, in order to be able to have a comfortable retirement and lead the kind of life you want to in the future. The most common way to save for retirement is with a employer sponsored 401K, but you can also open your own IRA to save for the future.
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.
Thanks for reading,