As explained in How to start saving right now, we’re going to look at different aspects of saving money. One of those aspects is that little question why save? Because there are quite a few points to consider here, we’ll split this discussion into two posts.
So what exactly is the point in saving in this modern age where we can get loans from banks (albeit less easily than before the recession hit), from companies advertising on our TVs or even exchange our possessions for immediate cash?
What can saving do for you?
Actually, there are quite a few things. First and foremost, before we look at these things, let’s just consider: if we take out loans we have to pay them back with interest. Those advertised on TV are pretty crazy – just check out the interest rates on them. Spawns of Satan.
And why would you want to part with your possessions? Unless they are ones you are fed up of – in which case consider eBay first, try and get the highest price possible!
So in the long term saving is a much better course of action, and the earlier you can do this the better – compound interest means you amass more the younger you begin.
Now let’s take a peek at some reasons why we should all be saving regularly. Some of these points are vital and we should all be saving for them, like for our retirements. Some are personal choice, such as saving for a holiday or gifts. Others will come and go in life, such as saving for a wedding or family needs.
Saving for your future
Think about it. All being well you intend to live to a ripe old age while getting the most out of life. Yes, you need to spend in the now to enjoy yourself. But what will you do when you reach retirement age and want to carry on enjoying yourself?
You should have a state or private pension, but will this be sufficient? I’m not putting a lot of hope in getting a great state pension when I’m older simply because of ever increasing populations and national debts. Better safe than sorry.
Furthermore, what if you or a loved one need healthcare or residence in a care home? Again, the state currently provides both of these, but will they always? We are already seeing nursing homes for our elderly relatives charging ridiculous fees of £1000s each month.
It’s estimated Asian economies will overtake those of the west in the 2020s and they have a much less “nannying” approach to citizens’ wellbeing. Could we expect our societies to retain this rather than following their lead?
We should be at least matching our employer’s monthly pension contributions according one About.com article.
Putting into a “rainy day” fund
By this I mean money set aside for those unexpected happenings and emergencies that turn up throughout life. Your roof might leak (ruining possessions beneath or the carpet in the bedroom). Your oven or washing machine might break down. Your car might be involved in a collision or just get a flat tyre. You could be laid off from work or develop a debilitating illness.
These unforeseen costs can be fairly hefty, and they can sometimes rack up – they say bad things come in threes… Occasionally they are prolonged.
Some people won’t see the difference between saving for the future and having a “rainy day” fund. To me there is a clear distinction. You can’t touch the first set of savings until a certain age if possible. You will delve into this second pot occasionally throughout life.
The About.com article quoted above also recommends your rainy day savings be equivalent to between three and six months’ of your outgoing essential expenses (drop the magazine subscriptions, but can you really do without food?). They also suggest those without these emergency savings now start by gathering at least £1000 as soon as possible.
Saving for yearly essentials
We all have costs that come around on a set basis, whether that be once a month, twice a year or annually. Think here of your car’s MOT, your yearly public transport pass or your TV licence. There’s your Sky or magazine subscriptions paid quarterly perhaps.
I have to save for an MOT and service in January, paying off interest put onto my student loan in April/May (something I choose to do to save it all building up), car insurance in September and renewal of Microsoft Office and anti-virus softwares in November/December, to name just a few regular expenses. Look back and think what you’d be best having a safety net for.
Let’s leave it there for today… Check out the next post to see some other reasons why saving is definitely something we should be making a habit, including saving to buy a new home or for that impending big day.
If you’re a current savvy saver, how often do you put money away? It’d be great to see your feedback in the comments below.