Today’s personal finance hack is about saving money.
Saving money is underrated these days because it’s possible to live beyond one’s means thanks to credit cards. The ubiquitous nature of credit-oriented financial tools has made debt an acceptable part of life, but that leaves consumers extremely vulnerable to economic shocks.
The solution is to pursue a lifestyle that is not marked by a persistent state of indebtedness. The role of saving money is central to this financial goal and today we share some reasons why you should start saving money today.
1. Save money for an emergency fund
Unexpected expenses can dent your wallet and smudge your budget. A storm may damage your roof, a road accident may damage your car, a dependent’s health condition may deteriorate or you may get laid off. To meet these unexpected expenses without going bankrupt or incurring large amounts of debt, you need an emergency fund, i.e. backup money.
We wrote an article about how to build emergency funds last year. Have a look if you’re interested.
2. Save for your retirement
The earlier you start saving for retirement, the better. Post retirement, medical expenses quickly add up, and your health insurance may not provide adequate coverage, forcing you to rely on loans. You also need enough money in the bank to support a desirable standard of living, and considering the variable nature of these expenses, the more money you have saved up, the better.
3. Save money to buy an asset
One of man’s most basic needs is shelter, and whether you decide to move into your own home or rent a house/apartment, you need money. You may think that renting a property may not require you to dip into your savings, but the fact is, lease agreements often ask for substantial security deposits as well as two months’ worth of rent. Let’s say your housing situation has been covered, you still need other assets to go about your daily activities, such as a car, electrical appliances or even furniture in your house. All of these require money that you cannot always readily provide from one month’s salary and are more expensive to purchase via credit cards or leasing arrangements.
4. Save money to pay off debt
Because outstanding debt quickly multiplies over time (thanks to compounding interest calculations), many financial analysts advise clients to pay it off as early as possible to avoid the corrosion of one’s financial assets. Debtors can use their savings to pay more than the minimum monthly installment so the loan is paid off faster than the stipulated time as per the repayment schedule.
5. Save for your children’s education
It is unfortunate that college education is rarely obtainable without the help of student loans. The pressure of paying back these loans once the student graduates can be financially crushing. If parents help support their college going children, this burden can be eliminated to a great extent and allow them to focus on building their careers as soon as they get their degree.
Do you know of any other reasons to start saving money today?