Last updated in December 2020
There are many reasons to save money which highlight the importance of it. For many people, it is normal to spend all the money they earn in a month. They are unaware of the dangers that come with this lifestyle.
Everyone should save money. Yet in our consumerism-driven culture people are not taught at school about the reasons to save money. If you do not understand why you should save, it makes it even harder to do so.
Table of Contents
6 important reasons why you should save money when you can
1. To be safe
Having savings gives you safety. In the most extreme case, you can buy yourself a place in a shelter should natural disasters or war destroy the planet. More realistically, savings enable you to deal with emergencies such as redundancy, illness, broken cars, etc. in a stress-free manner (see emergency fund).
You can also look towards the future with a calmer outlook. There is no need for money worries if you have sufficient savings.
2. To afford big purchases
If you have sufficient savings, you are able to afford big purchases. Obviously, if you just start to randomly buy all kinds of things, you will not have savings anymore. My point is that some purchases will pay off in the long term, meaning you can increase your savings further.
One example is buying property. Saving money may enable you to buy a house, meaning you could save money in the long term. You could also finance a university degree or other course which could increase your earning potential.
3. To take advantage of compound interest
Compound interest is the interest you gain on your interest. Essentially, this means the money will produce more money if you save it instead of spending. Think of it as an apple tree from which you can harvest apples every year. Just instead of apples, you can harvest money.
Assuming you invest your money sensibly, for example in an index tracker, you are likely to gain an interest of 5% post-inflation. This means if you do not touch your savings, the amount of money you have will grow vastly over time.
Additionally, if you only withdraw a small amount of money (less than 5%), you should never run out of money. This concept is the basis for many people who retire early.
4. To advance your career
Having savings can help with your career. There are two ways in which having money is helpful:
- You have a safety cushion and can make more risky moves.
- You have the money to pay for certifications or courses.
If your nine-to-five job crushes your soul and you would rather set-up your own business, savings enable you to make the move. Because you do not have to worry about how to pay bills, you can fully immerse yourself into starting your business. The same applies if you want to switch to a less well-paid but more fulfilling job.
Equally, in some careers, you can only advance if you have special certifications or you may need a course to take you to the next level. With savings, you can pay for the fees attached to these or take some time off to study.
5. Reasons to save money: To retire early
If you want to retire before your mid/late sixties, having savings is mandatory. Saving and investing money can enable you to retire much earlier, in your thirties or forties. This does not mean sitting on your sofa watching TV all day. Rather, you have time to fulfil your dreams, go travelling, volunteer, or pick-up meaningful hobbies.
Even if you plan to only retire at the normal retirement age, having savings is still crucial. By the time you reach retirement, state pensions may longer exist. It is always better to be prepared.
6. To leave your children an inheritance
Most parents want their children to have a better life than they have themselves. One part of this is giving your children an inheritance. Having savings means you are building generational wealth, something you pass on to your children, and they pass on to theirs.
If you would rather make use of the money while you are still alive, you can enable your child to go to a better school or get a university degree without financial worries. This means they can get a hold of a higher paying job.
6 important reasons why you should save money when you can summary
There are many reasons for saving money, including:
- Be safe
- Afford big purchases
- Take advantage of compound interest
- Advance your career
- Retire early
- Leave your children an inheritance
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