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What Is The Importance of Saving Money

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Importance Of Saving Money by Munif Ali

What are the importance of saving money when in fact, money is made to be spent?

Different people save for different reasons. But in general, having savings will benefit you in the future, whether you’re avoiding hardship or going after the things you want. Having savings may also be easier if you have a clear goal or purpose.

However, if you don’t earn much and you can barely pay your bills, the idea of saving money might seem funny. When you’re only left with $5 at the end of every month, how would you even consider saving? Everyone has to start with something, and if you work on it, your financial situation will likely improve over time. Saving money is worth the effort. It can give you options and peace of mind, and the more you save, the easier it becomes to accumulate additional savings.

Here are some importance of saving money:

1. Save for emergencies

When faced with an unexpected expense of $400, a study showed that 40% or four out of 10 adults in the U.S. wouldn’t be able to cover it with cash. About 27% of these would need to borrow the money or sell something to come up with the $400, while the 13% would not be able to cover it at all. This data is according to the Federal Reserve’s 2018 report on the economic well-being of U.S. households. That emergency might be an unexpected car repair, expensive medical bills, or a sudden job loss.

If you were about to lose your job, you’d be thankful you saved a good amount of money into your emergency funds to aid you until you find a new job. Ideally, your emergency fund should contain enough money to cover three to six months of expenses. The Bureau of Labor and Statistics estimates the average household spending in 2020 was $61,334, or $5,111 per month. Using that as an example, an emergency fund covering six months’ worth of expenses should hold about $30,000.

If you were about to lose your job, you’d be thankful you saved a good amount of money into your emergency funds to aid you until you find a new job. Ideally, your emergency fund should contain enough money to cover three to six months of expenses. The Bureau of Labor and Statistics estimates the average household spending in 2020 was $61,334, or $5,111 per month. Using that as an example, an emergency fund covering six months’ worth of expenses should hold about $30,000.

Saving Money

2. Save to achieve financial security and freedom

Did you know that according to the 2021 survey by Bankrate, more than half ( 51% ) of Americans have less than three months’ worth of emergency savings? With savings at hand, you are giving yourself the freedom to choose what you want to do, rather than feeling stuck in a particular situation or position because you rely on the paycheck. If you’re tired of living in an unsafe neighborhood, you can move to a safer area because you’ll have enough to deposit for a better apartment or a down payment on a nicer home. If you’re tired of commuting and running after the bus on the way to your 7 AM office work because your car broke down again, you can have the option to sell your car and get a more decent one.

The more money you have saved, the more you control your destiny. If your job has you on the verge of a nervous breakdown, you can quit, even if you don’t have a new job lined up yet, and take time off to restore your sanity before looking for new employment.

3. Save to attain Peace of Mind

Who hasn’t lain awake at 3:00 a.m. wondering how they would afford something they need? If you don’t earn enough, you might be wondering how you’re going to pay the rent next week. Or, if you’re unhappy at work but money is tight, you might be worried about how many months you could pay the bills if you lose your current job. One way or another, you have to find solutions to the money problems that keep you up at night so you can sleep better.

 
Peace of Mind

Eight out of 10 adults in America have at least one credit card, and 45% of American households have some kind of debt (meaning they don’t pay their credit cards down to zero each month, so they have at least a credit card debt). Knowing that you have savings gives you peace of mind because it diminishes your worries. If you know that you already have next month’s rent taken care of early, you won’t have to worry about the due date. If you know you have savings to get by without work for three to six months, you have the option to navigate if you wish to explore companies. If you have savings accounts for your children’s education, you won’t have to worry if your child can continue studying next year. And with the retirement fund that you’re regularly funding, you’ll sleep better at night because you know you’re not growing old penniless. The reduced stress from having money in the bank frees up your energy for more pleasant thoughts and activities. 

4. Save for big purchases

Have you ever thought of buying a house so you won’t have to worry about rent and transferring from one apartment to another? According to the Statista Research Department, the homeownership rate in the United States amounted to 65.5 percent in 2021. Since the goal here is to save money, one of the crucial reasons for saving money is to allot it for big purchases. 

Aside from a house, there are a variety of expenditures to save for. These expenditures could include a new car or household equipment, such as a refrigerator, washer and dryer, or television. These larger purchases can be costly. If you do not have the cash upfront, you might have to use a credit card, which can be tricky to use. While we may think about them often, big purchases are the reasons why savings are essential in the long run.

5. Save to accumulate wealth

Another reason to save is to build wealth. In doing so, you need to develop excellent financial practices to increase your cash reserves. Savings also help you invest, which is the only way to build long-term wealth. You might begin by saving money in an interest-bearing bank account, for it will allow your money to earn interest.

Where you save your money matters, too, you may opt to use a regular savings account, a high-yield savings account, or a savings bond to earn interest on your savings. When interest rates go up, your savings yield will also go up. However, as interest rates rise, credit card rates go up, too. Therefore, it’s even more important that you have cash in savings in case of an emergency, so you don’t have to rely on expensive borrowing to cover your bills.

6. Save for your child’s education or your own education

The cost of education is increasing. Each year, student fees rise, making it more challenging to pay for education without going into debt. It is tough, but you can ensure that your children graduate from college debt-free with proper planning and commitment. Having a minor savings account is your best bet since it is targeted for children.

Don’t neglect saving money for education, whether for yourself or your family. Higher education may improve career prospects, depending on the industry, but it comes at a cost. For the 2020-2021 school year, the average cost of in-state tuition was $9,580, while the average cost of out-of-state tuition was $27,437.

Think about saving money for more than just tuition. If you or a family member will be attending school full-time, you may also want to save up money to cover living expenses and more

8. Save for your Marriage

Marriage is an expensive event, but saving money early can help. It is the only way to get your dream wedding without getting into any debt. Some savings accounts offer high interest, which allows you to grow your savings simultaneously. The importance of a savings account simply cannot be overstated.

9. Save for your retirement

Another reason why it is important to start saving for retirement early is that you can take advantage of compound interest. This means that the money you save will earn interest on top of the interest it has already made, which can help your savings grow even more quickly.

For example, if you opened and deposited $100 every month for ten years at a 6.5% interest compounded annually, you’d have more than $16,000 after ten years. If you keep doing this for another ten years, you’ll double your money to $42,000 to $46,000. If you started investing at age 25, with 30 years of saving $100 each month at a 6.5% rate of return, you’d have more than $100,000 by the age of 55.

Such a rate of return is not guaranteed, and you risk losing your money by investing. However, historically the gains have all been positive, and with enough time in the market, even dips eventually recover.

 The advantages of having savings are endless. And the benefits that you can reap from knowing that your money is worth it. Whether you’re avoiding hardship or going after what you want, it is always beneficial to have savings as a safety net. And this will all be easier if you have a goal or purpose for it.

There are a lot of benefits of saving money, check our new video talking about it.

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