Most of us know that saving money is important. From our childhood, our family members have told us about saving money. However, many of us don’t save enough money. Without a goal or reason in sight, saving money may be difficult.
It is very tempting to use money on our present self than save for our future. As we can’t predict the future, saving money helps to build a safety net for our future.
Saving money can help to fulfil your financial goals. However, if you don’t have financial goals at this moment, saving money is still a good idea.
While there can be many reasons to save money, we have shortlisted four reasons that will apply for everyone.
Although we never plan for emergencies to happen, it is best to remain prepared for life emergencies. Job loss, medical expenses and urgent house or car repairs are some emergencies that can strike anytime. Having an emergency fund is important to avoid falling into the debt trap or depend on other family members or friends.
Ideally, your emergency fund should consist at least three to six months of expense. You can also save a year’s expenses.
You can implement various ways to build your emergency fund. To calculate your expenses, you can either include the bare essential expenses or include occasional treats and luxury items as well.
To build an emergency fund, you can earmark or open a separate savings account and transfer some money from your regular savings account to this account.
Retirement is another important reason to save money. The retirement landscape in India is no longer same. Earlier, pensions and joint family structures made it easy to navigate through retired life. As many employees don’t have pensions and live in a nuclear family setup, it has become important to save up for retirement.
As saving for retirement is a long term financial goal, equity mutual funds can be an ideal investment option. The earlier you save for your retirement, the lesser you will need to save. All thanks to the power of compounding.
For example, if you have invested in an equity fund and invest Rs.2,000 every month through Systematic Investment Plan (SIP) for 10 years with 12% average annual rate, you would have built a retirement corpus of Rs.4.60 lakh. At the same time, you invest a total of Rs. 2.4 lakh.
However, if you keep investing for another 10 years, your retirement kitty will grow to Rs. 19.78 lakhs, which is more than double of Rs.4.60 lakhs.
So, if you invest at 25 and continue investing till 55 years, i.e. 30 years, you will accumulate around Rs.70 lakhs. This is a very simple example to highlight the power of compounding. In reality, with the increase in income, your investments towards your retirement fund will also increase.
Gradual increase in inflation erodes the value of money. Hence, today’s Rs.500 may not be worth the same in 5 years. You may have to shell out Rs. 520 to buy the same items that you would get for Rs.500. The effect of inflation will be more pronounced in the long term.
Also, the advances in medical sciences have increased the life expectancy of people. So, that means that we may live for more years than the previous generations. And to survive these years with inflation, saving money is important.
Saving money can have positive effects on your self-confidence and your well-being. With savings, you can tide over the emergency without depending on anyone, take decisions properly and go after the life of your dreams.
Saving money is important for everyone. It doesn’t matter how much you earn. You can start your saving journey by saving a little amount every month. In this article, we have mentioned four important reasons to save money. Start saving money and reap all the benefits later.
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