10 reasons why saving money is important

10 Reasons why saving money is important

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why saving money is important

 

The reason why saving money is important, should start with “Why” i.e. we should ask question to ourselves first “why saving money is important?” If “Why” is clear in our mind, then “How” will clear itself i.e. “How we will save money?” will clear itself. Until “Why” is not clear in our mind, “How” will never clear ever.

why saving money is important?

 

So let’s first clear “why saving money is important?” in our mind.

In this world, every person earns money. It may be more or less but earns.

Earning money is something we trade our life energy for. We sell our time for money. It doesn’t matter that one person sell his time for a thousand rupees per hour & other person sell his time for hundred rupees per hour.

The only real asset we have is our time. The hours left of our life.

If assume an average age of person is eighty year, it means total hours available seven lac eight hundred with him. We will spend easily half of them sleeping, and keeping our body fed, clothed, and reasonably comfortable.

Maybe we already halfway through our life, means we already spent three lac fifty thousand four hundred hours & same amount hours left with us to spend. It’s our real treasure left in our hands.

This is all we have to love our families, our contribution to society, our enjoyment, our legacy. And we sell some of those precious hours for this. Our time is where all meaning and value lie.

It means how much my life, am I willing to sell to have money in my pocket? How many hours of my life did I invest to have this …home… car…sports motorcycle…furniture, etc.

Knowing money allows us to maximize and optimize our most precious resource: Our Time; Our Life.

Now our saving rate or saving ratio is one of the most important factors to achieve Financial Independence.

Think about saving rate in this way: If you spend 100 percent of your paycheck, you will never retire. If you spend zero percent of your paycheck each month, then you are already financially independent & no longer need to work for money.

But what about all those percentages in between?

Some people are just one or two paycheck away from homelessness or bankrupt. Even some people one paycheck or one major illness would be enough to send them over the edge.

In recent Covid-19 situation, where a large-scale unemployment happened. With savings, unemployment is not a tragedy. If you lose your paycheck but have savings, you need not to lose any of your possessions.

So the sooner you start, the more you will have. That is why parents establish saving account for their children at young ages.

Saving is the seed of investment and investment is seed of financial independence. Without saving, no one can imagine financial independence.

Saving can give us new courage at our job and new energy to explore the neglected parts of our life. Savings relax any unconscious fear of homelessness or bankruptcy.

Saving money also builds the potential for financial freedom – from future emergencies, from being in debt, and from working nine to five until sixty.

Saving money is like building a dam on a river. The water that builds up behind the dam has an increasing amount of potential energy.

Allow your money to accumulate in a bank account, overnight fund, Liquid fund. And you will be ready to power anything from painting your home to reorienting your life.

So let’s discuss one by one why saving money is so important.

 

#1 Financial Security:

In the India, there is very famous quote “Chinta Chikha Ke Saman Hoti Hai” means worrying is pyre.

If a person continually feels about shortage of money, this will lead him to his death bed sooner.

Why Financial Security Important?

One cannot understand the importance of day until faces night. In same way the importance of saving money cannot be understood until one feels money crunch.

If a person have enough saving in his bank account, overnight funds, or Liquid funds. Then he will not bother about financial ups & downs of his life. This financial security will give him courage to take right decision.

This financial security does not come in a single day. For this you have to save money every day. As very famous quote “Drip fills the ocean”.

#2 Home Ownership:

This is the very emotional dream of everyone who is at this planet. Everyone wants that one fine day they would have their own dream home in which they would enjoy their life with their families.

Why own home is important?

But to become this dream true, you have to pay hefty amount as down-payment to owner which is not possible without saving money.

To pay the down-payment not possible if one has not saving money habits. The banks will finance home loan only 80% – 90% of your total home value, rest you would do yourself. If you have enough savings with you then no need to afraid from rest amount. But if you have no or little saving then you would take up personal loan, which is again one more debt trap.

#3 Freedom to pursue your dreams:

Ask yourself how you would spend your time if you could take a year off with pay. Don’t be surprised if you find your mind a total blank; your job may have suppressed your true dreams and desires.

Why saving money important to fulfil dreams

 

But stay with the question and discover the possibilities of what you would choose to do if you had enough savings that you didn’t need paid employment for one year.

The saved money will give us enough freedom to pursue our dream.

In a survey almost 85% peoples don’t like their jobs. They want to pursue their dream work. But they can’t afford to leave their job because have not enough savings.

Hence they miss the chance to live a life on their terms and lose the opportunity to create a massive wealth.

#4 To cope with emergencies:

Somewhere I had read that “Problems are not comes in Installments”. This line has very deep meaning. We should be prepared for any emergency comes in our way to life & this preparation not possible without having emergency fund.

Why Emergency Fund Required?

 

The emergency fund should be equivalent at least six month of your monthly expenses. You can park your emergency fund in overnight or liquid funds to take good inflation adjusted return. But all this will be possible with saving of money every day.

#5 Renovation of home:

If we have some special occasion in our home & guest have to come. Then we think first that our home should be renovated.

Why Home Renovation Required?

 

In the India we used to renovate our home before Deepawali festival. But, is it all possible without money? No… If one has enough savings then he can afford to do it else can think about it, but would not able to achieve it.

There is annual maintenance required to home also. Our homes get deteriorated with seasonal change or time. So for the maintenance of our home, money is required. And this money will only possible with our savings.

#6 Education of children:

Every parent on this planet wants to give best education to their children. They want their children should take good education & become capable personality upon whom they can proud of.

Why saving money important for children education?

But day by day education becoming costly. It may be at any level… schools… colleges…universities. There also education mafia who is making condition more serious by increasing irrelevant cost of education.

But parents have no option except to give hefty fees to these organizations. This again possible if parents have their saving intact, else their goal to give good education would not achieved.

#7 Helping Others:

We are social animals & can sustain only in our life by giving or taking help of others & financial help is the one of the top-most in now- a-days.

Why saving money is important to help others?

If you just earn money & give few percent of your earned salary say 10% to help others or as charity, you will be able to help limited persons.

But if you save money & invest it intelligently, then takes the benefit of compound interest, which makes your investment many fold.

Hence your money grows exponentially with time & with this growth you can help many peoples, if your goal is to help others e.g. Sir Rattan Tata, Azim Premji, Bill Gates, Warren Buffett, etc could be able to help so much people only if they had saved money & invested it.

#8 Saving for fun:

Some people think that saving money & having fun cannot be done simultaneously, instead you have to make choice of either. But this is very poisonous mentality.

In fact, fun is the integral part of our personal finance, and it’s essential for our financial & physical well-being.

Why saving money is important to Fun

But we should always remain frugal for having fun. Frugality means enjoying what we have.

If we have visited ten outdoor places but still have dissatisfaction, then you neither be able to have fun in your life nor will be able to save money.

But if you have visited only one place & enjoyed it a lot, it means you have made lot of fun & save money.

Our success at being frugal is measured not by our penny-pinching but by our degree of enjoyment of the material world, how much we could be able to make fun with, what we have.

# 9 Major life events:

As we go through our life there are many major events come on the way. This may own marriage, marriage of children, expecting new born baby, etc.

Why saving money is important to Marriage

We know how much it expensive to fulfil all those goals but if we have saving then will not bother about it. So we should squeeze every extra penny out of from our budget & put them for investing.

We should start first saving & then investing as soon as possible to take the benefit of compound interest.

#10 Saving for retirement:

This is very critical aspect of our life. Until we are in working age & getting our paycheck, we will able to pay off our liabilities.

Why saving money important for retirement?

But what will happen when we will get retired & have no income source?

Just imagine what would happen. This thought will leave you with blank mind.

So we should start saving for our retirement at least at age of thirty five. Why am I mentioning age of thirty five? Because most of our personal goal achieved till then, like marriage, new born baby, having car, etc. (but exceptions always there)

After age of thirty five a person have some space to think about his retirement. Secondly to generate corpus for retirement, there should be at least twenty five years required to achieve goal comfortably by taking the benefit of compound interest.

One can live a life with dignity if he has retirement planning, else be ready to work even after age of retirement.

Some people normally say that they have not enough income to save money for retirement. You can motivate by simply giving the answer to yourself of this question.

“If pain of future is greater than pain of today” then you must start saving money for retirement now else no needs to do it.

So these are the ten factors why we should save money. When ‘Why’ is clear then ‘How’ will clear itself.

I am explaining briefly ‘How’ money can be saved.

Every person on this planet spends money in two ways. Either he spends first and saves later or save first & spends later. These are the two style of spending money of everyone in this world.

Income – Expenditure = Saving

Income – Saving = Expenditure

So what is the fundamental difference between both approaches?

Let’s understand with a simple example.

Assume, a first person earn Rs.100 & spend the money of Rs. 70 and saves the money whatever left i.e. Rs.30.

A second person who also earns Rs.100, but saves Rs.30 first and spend the money whatever left i.e. Rs.70.

So in both cases, the person saving money of Rs.30, then what is the fundamental difference between both above mentioned approaches?

Here behavioral finance plays a pivotal role.

In first case, our expenditure could vary due to any unforeseen or spending behavioral issues and then amount left for savings will also change accordingly. With this approach our brain works in passive mode.

But in second case, we give money to ourselves first as per predefined limit & then do expenditure. In this approach our brain works in active mode. Now it will always remain busy to find out the way, how to fulfill all expenses in whatever amount left after saving by doing budgeting.

If it finds problem to accomplish expenses in whatever amount left in budgeting process, then will find out the ways to reduce the unnecessary expenses or postpone to next months.

Hence in second approach our saving money remains intact, which is seed for investment to create massive wealth.

So we should save money first then spend.

Conclusion

We go through every possible aspect of life & understood why saving money is important. What do you think about saving money. Leave a comment below

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