Why Save Money?
Saving money is important, but it is certainly not glamorous. Whenever you watch television or browse social media, all that you see is advertisements telling you to “spend, spend, spend”. Advertisers doing there thing make it hard for you to want to save, but you must.
If you have lost focus and need a reason to save, here are some reasons for saving money.
1) You Need An Emergency Savings
This is one of the most important reasons to save. If the pandemic has taught us anything, it is that most of us are not prepared. An emergency savings can help you keep your head above water when things go wrong.
You might be fine right now, but what would happen if you lose your job suddenly or faced an unexpected expense. Life happens and none of us are immune from a financial emergency.
Ideally, you want to have at least 6 months of expenses in an emergency savings account. So, if your bills are 3000 dollars a month, you need 18,000 dollars in your savings account. Sound like a lot? It might be easier than you think.
Starting Your Emergency Savings
First, you need to open a savings account. I recommend getting an online account that is not affiliated with your normal checking. That will allow you to have some separation which will prevent an impulse raid of your savings. You will still be able to get to your money, but it will take a full business day to do so.
Next, you need to start making automatic deposits to this account. Set them up for the same day that you get paid so that you will likely never even see the money. You can not miss what you never see.
How much should you put towards savings though? Ideally, 10 percent of your take home pay. If you bring home 2000 dollars a check, you should be saving 200 dollars of it. If this seems like a lot of money, work up to it. Start saving just 50 dollars a check and work up from there. Even just 50 dollars will add up to 1300 dollars a year if you get paid every two weeks.
2) You Want To Eventually Retire
You don’t want to work forever, do you? If you want to retire at some point, you need to save money. Saving is the key to building wealth, security and gaining the ability to step away from it all.
Once you are comfortable with your emergency savings, you can turn to your retirement savings. Simply divert the money that you were putting towards savings towards an investment account.
Starting Your Retirement Savings
First, you need to decide what type of investment account that you want to go with. You can be aggressive or turn to account with zero risk such as a traditional savings account.
The type of investment account that you choose will depend on your age. The younger you are, the riskier your investments can be. As you get older, and closer to retirement, your investments need to become more conservative.
Because everyone’s situation is different, your best bet for having a successful savings account is to turn to a trusted financial advisor.
3) There Is A Big Purchase Coming Up
If you plan to make a big purchase, such as a trip or even a new car, saving money is an ideal way to prepare for it.
It has unfortunately become the norm for consumers to simply put big purchases on credit and then pay them off. This leads to wasting thousands of dollars in interest. Money that could be used to boost that retirement savings account.
Instead of wasting money on financing, anticipate the expense and save for it.
Starting A Big Purchase Savings Account
If you have a specific goal in mind, it is usually best to open a savings account geared just towards that goal. That will allow you to keep your money separate and work towards that goal. Since most savings accounts are free, there is no reason not to have multiple savings account.
Once you open your new account, simply start funding it. Figure out how much you will need and then divide that by the amount of months until you intend to make your purchase. That will give you your monthly savings target.
4) You Want To Stress Less
Let’s face it, we stress about money, especially when we desperately need money. Having a well stocked savings account will allow you to stress less over money and enjoy life.
How To Stress Less With Savings
Easy, just take advantage of all of the reasons above.
First, start an emergency savings and keep contributing as much as you can until you have 6 months of expenses saved. If you are having trouble saving, adjust your budget to make room. If you do not have room to save, you are likely living above your means.
Next, shift your savings towards a retirement account so that you can at least dream about retiring and taking it easy. If you are decades away from retirement, you have the ability to consider riskier investments with higher returns on your money.
Finally, start saving for big purchases instead of financing them. This will allow you to channel all of that money you have been wasting on interest into your emergency or retirement savings.