Who Should Save Money?
Maybe you don’t want to travel the world or buy a new car. Why would you save money to do that? It wouldn’t make sense to save for something you don’t want or need.
I realize it’s a rhetorical question. But just to be clear, everyone should save money. But not everyone needs to save the same amount, nor should they save for the same things.
So if you were wondering who should save money, the answer is everyone, but for different reasons.
What Should You Save For?
If you’re frugal or working to become frugal, you should save for anything you want to purchase. The goal is to get debt free and stay debt free.
Define Saving Money
My definition of saving money is to set money aside for a specific cause.
So often, I hear people say, “I saved money. I only spent $X on this item.” That’s not saving money. That’s spending less. (Maybe???)
Spending less is important, so we have more money to save. But spending less isn’t saving money. It’s spending less.
There are some savings that everyone should consider a necessity.
There’re some basic savings we should all have.
Sided note: if you need to accelerate your savings. Read my article “When to accelerate your savings.”
Retirement
Everyone should be saving (setting money aside) for retirement. You are wrong if you think you can live on only social security. The social security administration will estimate how much you can expect in your golden years. Look at it and ask yourself, “could I live on that today”? If your answer is no, you can be sure you won’t be able to live on it when you retire.
Emergency Funds
We all need a financial cushion to fall back on when life happens. You’ll need money to deal with it when it does. If you save for emergencies, you’ll have the cash to get you through the hard spots in life.
What Else Should I Save For?
Part of being frugal and saving money is avoiding debt. For example, If you plan to make a large purchase, you should save for it now.
You won’t have a monthly bill if you pay cash for the purchase. The discretionary money you’ve set aside (or saved) will preclude an increase in your living expenses because you don’t need to make payments.
As we all know, the fewer bills you have, the more discretionary income you’ll have. You’ll have more money to spend on your wants and needs. You can also include saving for another large ticket item or investing it.
Now let’s take it up a notch. If you financed an item versus saving for it and paying cash, you’d pay more because of interest on the borrowed money. Why pay that extra money when you could’ve saved for the item?
Paying interest doesn’t add value to your life or the purchased item.
Here’s another way to look at it: You’ll pay for all purchases one way or the other. Why not do it on terms that are favorable to you?
For example, let’s say you decide to take a vacation and expect to spend $3000 on it; the options are to finance it and pay it off over time. This will increase the amount you’ll pay for the vacation because of the interest you’ll pay on the borrowed money. This also increases your cost of living because of the monthly bill you’ll need to pay until the loan is paid off.
Or, instead of making payments on it in the future, you could make those payments to yourself now. And pay less than the first option (financing the vacation), and you aren’t increasing your cost of living.
The first way means you’ll pay for your vacation after it’s over, and you will pay more. The other way means you won’t be making payments for the past in an uncertain future (everyone’s financial future is always at least a bit uncertain). You’ll also pay less for the vacation and not increase your cost of living.
Set the money aside in a safe place like a savings account and make monthly or weekly contributions for the next year. Then you’ll have the amount of money you need for the vacation.
Setting money aside in this manner is using sinking funds. And using sinking funds in this manner will save you a lot of money.
Reasons To Save Money
Financial Independence
Saving money alone won’t make you financially independent. However, saving money will give you more money to invest. Increasing the possibility you’ll become financially independent.
Living Debt-Free
You’ll avoid debt and interest payments if you plan and save for upcoming events and large ticket items.
Unforeseen Expenses
You can’t plan everything, but we can be ready for almost anything if we have an emergency account.
Buying A Home
Most people will never be able to buy a house with cash, but if they save money to buy a house, they can make a large down payment decreasing the monthly payment and, in general, decreasing their cost of living.
Buying A Car Or Other Big-Ticket Purchase
You’ll be able to avoid debt if you plan for the large ticket items and save for them. Cash is always best.
Medical Emergencies
Even if you have health insurance, you will probably have some out-of-pocket expenses. Don’t be blindsided. Read and understand the limits of your policy and save the amount of out-of-pocket expenses.
Planning Your Retirement
To have more money to contribute to your retirement.
Why Should You Save Your Money?
Saving money and why you are saving it is very individual and personal, we all need to do it to get the most out of our money.
Building A College Fund For Your Children
It costs a small fortune to finance college. Not to mention the burden your children will have when it comes time to repay the loans. You can build a college fund for your children and save them many heartaches.
Traveling
If you’re a travel buff, you know it’s expensive. This is another area you can save a ton of money on interest if you save then spend.
Investment
There’s a difference between saving and investing. If you save money, you will have more to invest.
Living Worry-Free
After you have planned and saved the money you will need, life is easier. You are less dependent on your paycheck and have the peace of mind knowing you have upcoming events and large ticket items covered.
Conclusion
Who should save money? The short answer is everyone. We all need to save money for a myriad of reasons. People save for all kinds of things vacation, retirement, large appliances, automobiles, and so much more.