The importance of saving money is that you never really know what’s going to happen. You don’t know when good or bad luck will come to your way. Saving money can help you set a strong foundation for you and or your family to ride out any short, medium or even long term storm. Having savings can help you repair are for opportunities and challenges that come your way. Without any savings, you are at the mercy to the events of your life.
Saving is only fun when you have something to spend it on
What are the advantages of having savings?
You might want to have savings for any number of reasons. For events, my dear events. Anything could come up where money might help. Make it easier, faster or more comfortable.
It can make the future look at a lot more rosy as you have the ability to take advantage of things that come up. Expected and unexpected things. Good things that come up you were expecting and those that fall out of the sky. With savings, you can take advantage of them there and then. A job interview that comes up but requires and new suite and travel to another city. A long lost friend is in town, a new show comes to town that you would love to see.
You have a large or small safety net which will make sleeping at night much easier. You have money set aside for when you have a use for it.
You have the power to do what you want, when, where, how and with whom you want – within reason of course.
What are the three reasons to save?
Number 1 – Giving you and your family more options
The main one is clearly to have more options. If you have savings you can do anything, well almost anything. You won’t be able to do everything but you will have the option to choose what you want to do. The optimum word here is choice right now and in the future.
Number 2 – Having your own safety net
For when things go wrong, notice it’s a when and not if, you can roll with the punches. Your car breaks down, your boiler breaks, your bills are due. These can all or most of them can be easily managed and paid for without you spiralling into a debt crisis.
Number 3 – For making work optional one day
Even if you absolutely love your job. Maybe not today, maybe not tomorrow but soon and for the rest of your life you are going to want or have to do something else. Whether that’s to retire to something or from something you really want to have those chooses more firmly in your court that someone else’s. Far better to be able to reduce your hours, days or even paid work at all on your own terms.
It’s also far better to have your own parachute than have to wait for your state pension. Especially given the age for getting your state pension keeps changing and the amount you might receive relatively unclear. The current Uk state pension of around £8000 a year might also be a very sharp change of lifestyle if this is all you have to live off.
How much should I be saving?
How much you should be saving all depends on what you’re saving for. If you’re saving for a big goal then, of course, you might well have to save a large amount of money. You’ll often see quotes about saving 10% of your income, this I guess it’s better than nothing but possibly not much better. Are you seriously going to make any progress with saving that amount? If you are wanting to make serious progress towards your goals I would hazard a guess that a much higher savings rate would get you there a lot quicker.
If you are saving for the purchase of an item you can of course just divide the cost of the item by how long you’re willing to wait for it. So a £1,000 item would obviously take you 10 months to save for if you saved £100 a month.
It’s likely the most expensive thing you are saving for, whether you realise it or are actually doing it, is when you can’t or don’t want to work for money anymore. You are saving for when you want work to become optional.
How much should you be saving for financial freedom? Probably a lot more!
There is a fantastic article by Mr Money Mustache which shows you various savings rates and their effect on your early retirement/work optional dates.
A thing you should almost definitely be saving for is an emergency fund. This is an easily accessible amount of money to cope when things go wrong. If you have this fund in place it should help prevent you spirally out of control as unexpected costs come in. It’s commonly recommended that this emergency fund should be something like 3-6 months spending money. It’s between 3-6 months for the ultimate shock of losing a job and being able to spend a few months getting a new job before you run out of money.
You probably should be trying to save as much as you can. As much as it takes to notice it. All so that you can spend it on the things that are most important to you.
Things you might save for as a child?
A new bike, presents for family and friends, magazines and stickers, fun days out and even a little to give away to good causes.
The importance of saving money as a teenager?
To pay for your own gadgets and mobile phone bills, Maybe your first car, your first independent break or holiday, university or further study, apprenticeships or moving out and finding your first place to live independently. For alcohol when you can legally buy this.
The importance of saving money in your 20s
Further education, going out, holidays, transport, clothes, deposits for everything. Endless gadgets. And of course, just wasting it.
The importance of saving money in your 30s
More expensive versions of the above. Looking for more expensive ways to waste your money like kids especially childcare.
The importance of saving money in your 40s
Even more expensive and bigger versions of the above. Now with kids who have brand awareness and want the expensive version of everything. Education costs, even if the school is “free” it’s the clubs, course equipment and holidays that still need lots of money. Maybe even the costs of a divorce – or at least preparing for one!!
And maybe getting ready for your first divorce!
The importance of saving money in your 50s
Maybe you were lucky and maybe you weren’t but it’s now your turn to become the bank of mum and dad, so start saving. Hmmm, now you ain’t getting any younger. Should you start saving for retirement…….
How do I start saving?
The best way to start saving is to automate it, so it just happens, err automatically. Without you
screwing it up even thinking about it. If you have to think about it you might start to err and ahhh, about some other stuff that you really want and forget about the bigger picture. if the saving just happens almost by stealth you will actually be tricking yourself into becoming wealthy. Over time this drip drip drip approach will keep building up. And if you increase the saving amounts each month or year it will grow even faster.
Start with small amounts, then add a little each month until you notice it and if needed reduce it at this point. Have a name for the savings i.e. my new car, holiday or remove tattoos of ex fund. This will help keep you focused on the why of your savings.
Put your savings in a different account from your day to day account, making it a little bit more tricky to get to them.
How to manage your money?
It’s the 21st century, get an app for app’s sake. There are loads of them now that will track and with a little bit of prep, categorize where your money is going.
You can, of course, go semi-old school and use a spreadsheet going back and forth on your account and categorizing.
Or full-on old school and collect your receipts and enter them into your ledger. This option is mainly if you have loads of time and you prefer your own company….. all the time.
My thoughts on this are, make it as painful as you want it to be….. an app can make it a lot quicker and painless.
You could also set a budget or an anti-budget. I know that budgeting sounds like flat beer/prosecco i.e. sh*te, but it will give you a picture where you think your money is going. With a spending tracker, you can then see where it is actually going. This reality can be quite refreshing or “really is that what several nights out a month cost” (this is clearly only for people with no kids).
There are ways to split what you want to spend i.e. 20% in savings, 30% on lifestyle (wants) and 50% (needs) on what you have to like bills, rent, food.
Then there is the easiest of all budgets -the anti budget – just save what you need to, to meet your goals and
waste utilize the rest up the wall.
What are the types of savings?
Cash is king is the old saying. However with very low-interest rates and the ongoing erosion of its value from inflation possibly no more than necessary. Obviously you can keep anything you might need in the short term in cash. Probably better off in a bank account and if it pays any interest, even better.
For any longer-term savings where you don’t need the money for a few years, you might want to think about investing it in something that is likely to give you a better rate of return. This could be shares, bonds or property. All of which come with their own risks and rewards.
In summary, the importance of saving money
Take action now. Start by making a plan for when you think you might need spending money. Then start building your savings for these good and potentially bad events. And most importantly make it fun by having something clearly identified to spend it on.
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This blog post is for information only and does not constitute financial advice.
Heard any good savings tips and tricks, please leave them in the comments below?