Why save? Part 1

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.

6 thoughts on “Why save? Part 1

  1. Pingback: How to start saving right now - SettleMentality

  2. Pingback: Why save? Part 2 - SettleMentality

  3. Pingback: Why aren't you saving already? - SettleMentality

  4. Jonathan Boote

    Hi Kevin, my other half and I started seriously saving after we became civil partners in 2008. We both had good jobs so we lived off one salary and banked the other each month. We live in a modest one bedroom apartment and own another as landlords, so we have a bit of rental income each month also. So over the last 8 years, we’ve managed to save up just over £200k, allowing us to pay off our mortgage, and to get just over £100k in ISAs in the bank. This has allowed us to take a step back from work, for me to go freelance while enabling my OH to get a less stressful job. Our plan now is to save up another £60k over the next 8 years, which will allow both of us to early retire at 50, with enough to live comfortably on for 10 years til our private pensions kick in at 60, when we’ll sell our apartment that we currently rent out, to top up our retirement income. I know this approach to life and savings isn’t for everyone but it has worked well for us.

    1. Kevin Post author

      That’s very impressive and inspiring! Definitely an interesting way to save up for the future, thanks for sharing how exactly you managed it too. I suppose whether it’s doable for people depends not just on income but also what one’s priorities are. How have you both coped being in a one-bed apartment for a while? We find personal space and lack of storage an issue sometimes now..!

      1. Jonathan Boote

        Hi, we do sometimes think of moving but we live in a nice part of Sheffield, very near a park, restaurants and a pub. The place we own has a nice garden and quite a bit of land, and which was built as one flat on top of another. So we are able to grow our own fruit and veg and are able to sit out in the summer, so it doesn’t feel too cramped. We may well do a loft or garage conversion at some point if it gets too small, so we can put people up to stay.

Leave a Reply

Your email address will not be published. Required fields are marked *