Why Saving Money Is Important

Why saving money is important

It’s tempting to think that the most important reason we save is to prepare for the future. It’s true that this is one of the primary reasons. However, it is only part of the story.  When we save, we also get to enjoy the benefits today.  The benefits we receive now are lower levels of financial stress and increased levels of financial confidence.  This comes through the knowledge that we are on a path that leads to a better financial future.

Of course, there are numerous things to consider when saving for the future. Many of these such as interest rates, government legislation and the day-to-day performance of the stock market are beyond our control.  That’s ok and we should not let this deter us from moving our savings goals forward.  Instead, we should turn our focus to the factors that we can control.  When it comes to saving, the most powerful factors we control, are the amount we save and the frequency of our deposits or contributions.

Your ‘Why’ – What are you saving for?

The reason for saving money is different for everyone, and it is also very important.  Being clear on your money goals and figuring out your ‘Why’ is essential so that you stay motivated over time.  It is a requirement for you to succeed.  So, take time out to consider and get down on paper what you are saving towards. 

It could be a short-term goal, like an emergency fund.  A medium-term plan, like a wedding or home renovation. Or a long-term goal, like your children’s education costs or retirement.  Being clear helps you to run the numbers and to prioritise any goals that have similar timeframes.  Knowing the priority of your goals allows you to be intentional and if necessary to trade off one goal against another.

Powerful reasons we save:

Build an emergency fund – An emergency fund provides the foundation for building wealth.  It seems like such a simple step however many don’t have an emergency fund in place.  Without savings to back you up, your situation can quickly become challenging and stressful when inevitably life happens. 

What constitutes an emergency?  An emergency is the fridge blowing up, the car breaking down, an out-of-pocket medical expense for an accident, or an unexpected job loss.  It is not the Black Friday or Cyber Monday sales, or a weekend away with friends.  Do not ‘break glass’ for these wants, they are not genuine emergencies.

You need your emergency fund ready to go for the true emergencies outlined.  If you don’t have this savings safety net the normal but flawed way to deal with an emergency is to go further into debt by reaching for a credit card.  Start with $1,000 as your initial emergency fund, then payoff all debt (except your home), before building the emergency fund out to 3-6 months of expenses.  You’ll be ready for most things that come your way and enjoy a growing sense of financial confidence.

Education – As we learn, we grow and stretch ourselves.  Education can be a focus for yourself, your children, or both.  Certainly, the value of education is clear, and this has been reflected in steadily rising costs.  Each year it can become a little more challenging to meet educational expenses, so it pays to plan.  There are many modes of study, such as fitting study in around full or part time work; you or your partner studying full time while supported by the other; or private school or Uni tuition costs for your children.  We all want the benefits that come from a quality education however this shouldn’t come with a debt hangover.  It is possible to cashflow educational expenses through a commitment to saving and avoiding debt.

Lifestyle – We all have different aspirations for our lifestyle.  As we’re committed to avoiding any increase to our debt, we will need to save for the things we wish to enjoy in life.  This could include family holidays, updating the car, or a renovation for the kitchen.  With intentionality and purpose, it is possible to look ahead and set yourself a savings goal that will achieve the lifestyle you’re looking for without debt.

Retirement – Retirement looks different for everyone.  The one thing that we all have in common is that we need retirement savings and investments to replace the regular income received from working.  In retirement instead of trading our time for an income, our assets step up and deliver the income we need.  For this to work effectively you need to build your asset base.  Whether this is Superannuation, Managed Funds, Annuities or Direct Property, the work that you do during your working life to build your assets is fuelled by your savings rate and taking control of your most powerful wealth building tool – your income.

How to Get Started with Saving

The most important step to achieving your savings goal is to create a budget and stick to it. This does not have to be intimidating (see our budgeting tips here ).  A budget puts you in control and helps you understand what you earn and how much and on what you want to spend your money.  Budgeting allows you to tell your money what to do and ensure that your spending is aligned to your money goals.

Working together

If you share your life with a partner or spouse, you need to be working together on your budget.  One of you may be a natural spender and the other a natural saver, or any other combination. Whatever your natural approach, this is fine and something you can work with.  It will allow you to deepen your relationship by working together and understanding your individual perspectives.

Money itself can be an issue that creates disagreements or even arguments.  For this reason, or perhaps a mental block you may have around budgeting, it can be a task that many avoid.  It’s time to face it head on – you can learn how to manage your money and achieve your goals – and working on this together is both essential and powerful.

Put your savings on autopilot

Once you’re clear on your goals and understand your capacity to save by designing your budget, now it is time to bring your savings habit to life.  If you are manually putting cash away, it can be easy to skip saving this week or fortnight because something else seemingly more important or urgent has popped up.  To protect against this, arrange to have your employer transfer the desired savings amount directly into a different savings account.  It’s set and forget, and you will be one step closer to your goals with every pay cycle. 

Saving money is so important.  Along with achieving your goals, it will give you peace of mind and enhance the quality of your life.  Over time it will also build your wealth, allowing you to retire in style and give generously along the way. 

With the right plan you can take control of your income and achieve your goals.  Would you like help?

“Money is a terrible master but an excellent servant.”
P.T. Barnum
American author