The younger generation is finding out how important saving is in their lives. After watching their grandparents postpone retirement to pay off debt or their parent give up their homes just to get out of a financial crisis, they are seeing the value of being prepared financially.
While it is admirable that people understand the value of saving, it is disheartening to know how a lot of them are thinking that they do not have to save now. Young individuals are so focused on having fun that they fail to put aside some of their extra money for the rainy day. Well that has got to change. You need to understand why you need to save now. That is probably more important than learning various tips on how to save.
Why saving is important
Saving is important because the future is quite uncertain. While we all want to be optimistic about the it, you have to accept that there is really no certainty to it. You may be physically able to work right now but you don’t know if you can maintain the same in the next few years. Just as there are so many things that can bring you good fortune, there are also instances that can put you in a very difficult position in your life that compromises your earning potential. When that happens, how are you to survive?
Prevention is always better than the cure so to avoid putting yourself in a helpless situation, you need to be prepared. That is what savings can give you. It will give you the security that you need so that you can live a stressful life.
Here are the other benefits of saving.
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Provides for your needs when you lose your job.
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Finances a health related expense that you need to fund (medical and dental).
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Enables you to invest to build up your personal wealth.
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Teaches you to practice smart spending habits.
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Encourages you to live on a budget.
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Allows you to purchase things even without credit.
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Promotes better financial decisions.
These are only a few of what you will get by saving their money.
Various reasons to save immediately
The very bottom line of saving is to help you prepare for your future. It’s no longer about convincing you to save, it is already about trying to get you to save now. You will never realize the importance of this until it is too late. If there is anything that you can guarantee in your future, it is this: saving leads to a better life. No one ever regretted saving early – as long as it is done in moderation.
Here are a couple of situations in your future that will benefit directly from saving early. Most of them does not have a set target amount but they benefit more with a higher amount of savings.
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Prepares you for any change in status. This refer to both marriage or parenthood.
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Provides for your needs during retirement. The earlier you start saving for it, the earlier you can retire.
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Finances the down payment for your home. The more you have, the lower mortgage amount you need to borrow. That lessens the interest amount that you have to pay in the long run.
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Allows you to finance luxury expenses like a vacation or other expensive items like a car.
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Keeps you from borrowing money when the car breaks down or an electronic appliance needs to be replaced.
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Gives you the financial capabilities to pursue a higher education that will increase your chances of getting a higher compensation.
Setting saving goals and how to reach it
If you are finally convinced to start saving now, let us teach you how to set saving goals so that it becomes more encouraging to commit to it. When you have a goal in mind, every sacrifice that you have to make bears meaning. That way, it becomes easier to follow. So here are the steps that you can follow to make saving more effective.
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Determine your goal. It can be several at one time: retirement, home, car, emergency fund, etc.
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Write them all down and set a timeline for each saving goal. Place a specific date on each goal. This will help motivate you to save. Set milestones for goals with bigger amounts.
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Calculate how much you need to put aside every month to reach your goal.
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Make sure your monthly allocations are all realistic and you will leave enough room for your other payments and even a little entertainment.
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Open accounts or assign envelops that will hold your money. Bigger saving amounts must be placed in a bank for safety purposes.
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Choose the account that will provide the best return for your savings. Check money markets or mutual funds and find out if your savings have the best possibility to grow from them without compromising withdrawal requirements. For instance, your retirement fund can be placed in an account that you cannot withdraw anytime but yields higher returns. Definitely, your emergency fund cannot be placed in the same account.
You also have the option to just put all your money in one account and just record what goes into what goal. That can be a great alternative to setting up more than one account in the bank. But that is all up to you.
If you haven’t considered it yet, hiring a financial planner may do you a lot of good. Of course, you need to hire a certified professional – like those who passed the test provided by the Certified Financial Planner Board of Standards. You can find them through the National Association of Personal Financial Advisors or NAPFA. You can look through their members and see if you can work with one of them.