Overview
“Saving” is the process of setting aside money for future use. This includes long-term goals like buying a car, emergency expenses like medical bills, or small expenses like replacing an old pair of shoes. Savings are very versatile, and you can begin saving at any point in your life.
Importance
Despite - or perhaps because of - its simplicity, saving money is one of the most beneficial financial habits you can develop.
To begin with, saving money can help you work towards your financial goals. If you want to become a homeowner, you can use the money you saved to cover your down payment; if you want to treat yourself more often, you'll want some money set aside for just that; and so on. Sure, you could borrow money to help achieve your goals, but borrowing is a risky endeavor, especially if it becomes a habit. Saving is a much safer - and much simpler - alternative.
Speaking of safety, savings are a great way to protect yourself financially from an emergency expense. Emergency expenses can pop up at any point in your life. Whether it's repairing your car after an unexpected breakdown, or buying medicine for a family member's sudden illness, you'll want enough money on hand to cover these emergencies without going into debt. That's where savings come in. Rather than worry yourself sleepless or borrow more than you can pay back, you can use the money you've saved to take control of the emergency and avoid any financial setbacks.
Another benefit of saving is that it can help you get rid of unhealthy spending habits. For example, you might have a tendency to buy things you don't really need during sales events. Or, to shop compulsively as a means of relieving stress. Once you decide to start saving money, the consequences of your spending habits - good and bad - become more apparent to you, making it easier for you to decide which to keep and which to abandon. Abandoning bad spending habits isn't an easy process, nor is it a fast one, but if you prioritize your savings, leaving these habits behind can become that much easier.
Saving Tips
Just because saving money is simple, doesn't mean that it can't be difficult or laborious, especially if you're new to saving. Oftentimes, unhealthy spending habits or neglecting to make a budget can hinder your ability to save. And even if you've been saving for some time, you might not know how to do it effectively, and you're definitely not immune to some guidance. Here are some tips to ensure you save as much as you can:
Tip #1: Automate Your Savings
When you get your paycheck and have to decide how to use your money, savings should be your first priority. If you pay for other expenses first, like groceries or utility bills, you might not have money left to set aside for the future. And while things like groceries and utility bills are important, you should still put money in your savings first, because (more often than not) your budget can be tightened, or your spending habits changed, to make room for this extra process. Whether it's $10, $100, or 10% or your income, you now have guaranteed savings every paycheck.
Automating this process amps the guarantee – simply set up automatic transfers with your bank or employer so you can become wealthier without even thinking about it. Not convinced? Let’s say you save only $50 on a bi-weekly basis. If you place this money in a savings account with a 3% interest rate, your savings would grow to around $1300 in just one year, and over $15,000 in ten! Automating your savings is one of the best favors you can give to your future self.
Tip #2: Make a Budget
Budgets are personalized spending plans based on how much income you're earning, how much money you're spending on your needs, and how much money you're spending on your wants. If you know how much income you're earning and what expenses you need to pay, you’ll know how much money you can safely allocate to your savings. Budgets can also tell you if you have any bad spending habits you need to get rid of, and if there's anywhere you can make adjustments so you aren't paying as much. If you want to learn more about budgets, and how to make one for yourself, click this link!
Tip #3: Tortoise
To save more money, you don't need to make any dramatic or overly idealistic changes to the way you spend. Instead, focus on smaller ways you can gradually build your savings. Try to:
- Avoid impulse spending
- Buy in bulk
- Utilize price matching services
- Use coupons
- Use loyalty points
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Cut down on your utility bills
- Reduce the amount of energy you consume - this means electricity, water, gas, etc.
- Turn off the lights whenever you leave the room
- Turn off the air conditioning or heating when the weather''s nice outside
- Try walking or biking to nearby destinations, instead of using your car
- Turn off the tap when you're not using it - like when brushing your teeth
- Use natural or LED lighting instead of regular light bulbs
- Try to keep appliance use to a minimum - let your hair air-dry instead of using a blow dryer, wash the dishes yourself instead of resorting to the dishwasher, etc.
- Pay off your credit cards
- Pay off your debt
Saving money is a crucial part of improving your financial wellness. However, you shouldn't let it replace your ability to enjoy life. Treating yourself every once in a while - by going to a concert, eating out, or travelling - won't sabotage your life plans, as long as you don't dip into your savings to do those things. Having money is important, but so is your happiness and quality of life.