Why is it important to save money? If you're young and just starting out on your own, or have enjoyed being able to spend your paycheck on whatever your heart desires, there are many reasons to start saving your money.
Why is it Important to Save Money for Emergencies
No one likes to consider the possibility of needing emergency funds, but accidents, illness, and other unforeseen problems arise for almost everyone. While having a bit of extra money in the bank to afford replacing a household appliance might not be a huge expense, things like medical bills can be painfully costly.
Emergency funds allow you to pay for things without going into massive debt from loans or credit card bills. This money on hand can cover large and small emergencies, including:
- Car repairs
- Medical and dental bills
- Prescription medication
- Home repairs
- Job loss
Experts agree that you should set aside enough money to cover your cost of living for at least three months, but preferably up to six months. That way, you'll have some wiggle room should you need it.
You may be wondering, why is it important to save money for things like this, when there is insurance available and other safeguards in place? Insurance can be tricky, with lots of fine print and delays in getting your money back from the insurance company. In the case of an economic recession, the cost of everyday items like groceries and electricity all increase, with the added risk of job loss due to the recession. Having money saved for unforeseen circumstances gives you something to fall back on when the unthinkable occurs.
Saving for Retirement
If you're young, it might seem ridiculous to think about your retirement now. Saving for retirement is always a good idea, however, and starting early is the smartest and easiest way to go about it. Over time, your savings will add up and earn more and more interest from the bank. Having a nest egg in place will give you peace of mind, and as it grows you can even consider retiring earlier than you might have planned.
Saving Money for Your Kids
Many parents like to save money for their children, to pay for their education and other defining moments in their lives, such as buying their first car or contributing to their weddings.
Contributing to a fund for education savings will ensure that your child will have the option to attend college, without amassing a huge amount of debt in the process.
Saving for the Fun Stuff
Everyone needs to splurge on things sometimes, but this is tough to do when there's little money available. Saving up for that new kitchen, family vacation, or even new bicycles for the kids is the best way to handle these non-essential yet important expenses.
Instead of taking out a loan or putting large expenses on your credit cards, put some money aside every week or every month until you reach your goal and can pay cash for what you want. While this may seem like the old-fashioned way to do things, you won't have to pay interest on loans or credit cards as you pay them off, and you'll avoid going into debt should other expenses arise in the meantime.
Where to Learn More about Saving Money
There are many resources available to help you learn more about saving money. Talk to your account manager at the bank, or make a stop at the library to do some research. You can find lots of information online as well. Here are some great resources to get you started:
- Choose to Save - Information on everything from retirement savings to talking to your kids about the importance of saving money.
- Saving for College - Search for the best education savings plans by state, and get lots of information and advice here.
- America Saves - A conglomerate of government, non-profit, and corporate members working together to provide information for you to save money and get out of debt.
- Choosing a Financial Advisor - A financial advisor can help you with your savings every step of the way.