If you save money, you’re on the right track to experiencing a financially stable and independent life. If not, you should start saving right away. Borrowing money may seem like a quick and easy fix, but you shouldn’t depend on it since it can push you into an abyss of financial debt.
Saving money is not limited to helping yourself or your loved ones during emergencies, though it is one of the primary reasons why you should start saving. There are many other instances when your saved money will come in handy, such as when you want to invest, start a small business, buy a car, or even travel.
You should have a clear goal about how and where you will utilize your savings. This approach can help you start saving and sticking to your financial plan. Learn about the important reasons why you should save money in this blog.
Top six reasons why you should save money.
1. Unprecedented expenses and emergencies.
A survey by Bankrate shows that less than half of all Americans can pay an unexpected $1,000 expense. 2019’s government shutdown was a reminder that most Americans didn’t have enough savings.
NerdWallet’s survey during the government shutdown highlighted that:
- 62% of all employed Americans wouldn’t be able to cover their basic expenses for more than three months if they were unexpectedly told that they wouldn’t be receiving another paycheck.
- 36% of all employed Americans wouldn’t be able to cover their basic expenses for more than a month if they were unexpectedly told that they wouldn’t be receiving another paycheck.
- Finally, 45% of employed millennials wouldn’t be able to cover their basic expenses for more than a month.
You should be prepared for the unexpected because emergencies can happen at any time. An emergency savings fund covering at least 3-6 months’ worth of expenses will be your lifesaver.
2. Retirement funds.
Sooner or later, everyone retires from work, but no one wants to live a life full of sacrifice and debt at that age. If you begin money-saving at a young age, you can enjoy financial freedom during your retirement. Though, you should have a good savings plan in place and follow it with a disciplined attitude.
A recent report shows that 66% of millennials have no money saved for their retirement, while the 34% that are trying aren’t saving enough.
So, how do you start saving for your retirement?
- Contribute to your individual retirement account (IRA) or 401(k). Most employers automatically enroll their employees into a 401(k) plan with contributions starting at 3%. This is a great start, but you should aim to increase your contribution to at least 10-15% of your income. You can contribute to a Roth IRA if you don’t have access to a 401(k) plan through your employer or are not a full-time employee.
- Plan your budget and stick with it. You should take control of your finances, which is critical when saving money for retirement. One way to ensure that you stay committed to saving is by considering your retirement contribution as an expense rather than an optional payment.
3. Get out of debt.
You must have some money saved if you want to get out of debt. Sounds ironic but it’s true. Your credit cards won’t get paid off if you keep using them for any and every emergency that comes along. Statistics show that half of us expect at least one unexpected expense each year.
Before aggressively starting to pay off your credit cards, you should save a minimum of $1,000 as a reserve fund. It’ll help you take care of any unexpected expenses. Maintaining a reserve fund can also help you keep track of your spending.
4. Grow your finances.
To earn more money you need to spend money, which can be available to you when you save first. Starting a small business or investing in other endeavors can grow your finances, but you can only take that risk when you have enough savings to support you.
5. Buy a house.
Banks won’t lend you money to purchase a house unless you make the down payment. You need to have money to make the down payment since home buyers aren’t allowed to borrow the payment amount. You must have this money saved up, or someone should gift it to you and not lend it.
Your down payment should be a minimum of 5% of the purchase price of your house, and the bank will consider lending you the rest of the 95%. You need to take care of various other costs and pay fees when buying a house, so you’ll most likely need an additional 5% more. Therefore, saving more money can help you become a homeowner.
6. Job loss or business loss.
You could lose your job, your business could dry up, or you could hurt yourself and become sick. Should any of these misfortunes happen to you, you’ll need to have a financial backup plan in place.
Living on credit during times like these can turn things from bad to worse. Your savings can come to your rescue by allowing you to take care of your expenses. Even if you have no active income, your savings can prevent you from going into additional debt.
Set aside some money from every single paycheck until you collect at least $1,000 in your emergency savings fund. If you receive a bonus from your work or an income tax refund, start adding it to what you’ve already got set aside. It takes a bit of work to make money-saving a habit, but it’ll all be worth it in the end.
There are many other options available to save money for those rainy days, but it is up to you to choose a strategy that works best with your current situation.
If you are out of all the possible options but still need immediate funding, Lendee can give you instant access to a network of lenders who’ll be willing to help you.
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