Learning why you should save money is one of the best things you can do for yourself.
Saving money can help you prepare for life emergencies, retirement, building generational wealth, and more.
Living with financial security is one of the most important reasons why you should save money. Saving money allows you to do more things in life.
On the other hand, we constantly hear people saying that they don't want to save money because they want to enjoy life now. And there are others who believe they have the rest of the life to save money.
But, that's not 100% true if you want to have money for life's unexpected events and retirement.
Once you learn why you should save money, you will be prepared to enjoy the rest of your life and live with financial security.
Certainly, there are people who will have a harder time saving money than others. Some people may have a low income or a pile of debt.
At the end of the day, it's all about taking baby steps while on your financial journey. You won't be able to fix all of your financial issues overnight.
Also, there are a lot of great ways to increase your income to make saving easier.
Most importantly, saving money takes hard work and a good strategy. However, starting to save early in life will make things easier later in life.
1. Live With Financial Security
It's impossible to predict what will happen in the future. That's why you should save money to have a safety net.
If you take a moment to think about it, how will you get through a financial crisis without savings? Not having money saved up can hurt your retirement as well.
If you lose your job, you may struggle to keep up with your bills. Living with financial security is focusing on decreasing your liabilities and using your money to buy assets.
Around 80% of people are in debt and that is creating issues for them to save money.
At the end of the day, the more money you save, the faster you can live with financial security.
2. Enjoy Life
You should always enjoy life while on your financial journey. Now, that may look different for some people. Meaning, those who are in debt should limit the amount of money they spend on enjoyment so they can allocate a large portion of their income to debt.
Those who are out of debt can enjoy life a little more if their budget allows.
Enjoying life and having fun is a critical part of personal finance. It keeps you motivated and focused on the importance of financial security.
You should decide on an amount of money that you can enjoy that doesn't hurt your budget. This approach will allow you to spend and enjoy guilt-free and without hurting your other financial goals.
Important to note, focusing on why you should save money will help you reach your financial goals and have a little fun.
3. Plan For Life Emergencies
Everyone will experience a life emergency at some point.
That could include car issues, medical event, or family emergency that requires you to travel across the country. This is why having extra money saved can help reduce stress.
While dealing with a life emergency you don't want to deal with financial issues. So, take time to start creating an emergency fund of 3-6 months of expenses.
It's a good idea to save this money in a separate account from your daily checking account so you only use it for emergencies. Our favorite savings account is with CIT Bank. We love their online-only approach which allows them to offer higher interest rates than traditional banks.
Hopefully, you don't have too many emergencies happen but in the event you do, you will be prepared by having your savings in a secure place.
4. Build Generational Wealth
You should be living with a purpose in life. Once you are no longer living, you want to leave a legacy for your family. Building generational wealth is passing down your assets to your children to continue your family legacy.
Building generational wealth is important to the people around you. No matter what age you are right now, the way you handle money will have a lifelong effect – positive or negative – on your loved ones.
That is to say, focus on getting out of debt, decreasing your expenses, saving for retirement, and using your income wisely. This is the best way to build generational wealth for your family.
5. Plan For Big Purchases
Making big purchases can require a lot of money. Whether it's a new car, furniture, house, or a wedding, you will need to have a plan for how you will pay for it.
It's best to avoid taking on debt for most items. Our rule of thumb is to pay cash for everything as much as possible. The most common thing to take on debt for is a mortgage. As long as you get a mortgage on a 15-year fixed rate, you should be good to pay it off quickly.
Making big purchases are exciting but can hurt your other financial goals if not handled correctly.
Yes, you need a car to get to and from work. But, that doesn't mean you need a brand new car. You should look to buy cars in cash to limit the amount of depreciation on the vehicle.
Buying a new car is fine as long as you have the money to do so. Don't buy a car that you can't afford because you will regret making that monthly payment.
Going into debt for big purchases is not a good long-term solution. However, saving money so that you can pay cash is the best way to go.
6. Invest For The Future
If you want to build wealth, you are going to need to invest for the future and take advantage of compound interest.
However, if you spend all of your money, you will never understand why you need to save money. You will miss out on important financial opportunities.
Investing for the future doesn't require a lot of money. You can start small by saving $20 a week or a month. The main thing to remember is consistent saving will pay off in the long run.
The earlier you start investing, the more time you have to take advantage of compound interest. Compound interest is when your money is making money. It is extremely powerful and has helped a lot of people build wealth.
There are a lot of reason to start investing but here are 5 of the best reasons.
Some people have even taken the approach of investing small amounts of money to get comfortable with investing first. You can do the same with companies like Acorns.
They allow you to invest by utilizing the round-up method. For example, if you spend $2.75, the app will automatically round up to $3.00 and invest the difference of $0.25. You won't become rich by using Acorns but it allows you to start investing and create a new habit.
7. Reduce Financial Risk
The more financial stable you are, the less risk you will experience with your finances.
Risk is extremely important when it comes to financial planning and making money decisions that can impact your future for years.
For example, let's say you have a $10,000 net worth and you spend $5,000 cash for your next business venture. You just took a 50% risk of your net worth.
On the other hand, if you start saving and investing early in life, your money will grow so you are able to reduce your financial risk when spending money.
Let's say you invest and 10 years later you end up with a $50,000 net worth. That same $5,000 you invested is only a 10% risk of your net worth.
Ultimately, this is a key reason why learning why you should save money is obvious.
Why You Should Save Money - Final Words
Saving money is important but is not always easy. It provides financial security, freedom, and is a stress reliever. You must figure out what is most important to you when it comes to saving money. Set priorities and goals and use that to motivate you to save and build generational wealth.
What keeps you working hard towards your financial goals?