We have all heard that it is important to save money, but what exactly should you be saving for and why? It is important that your savings plan is in line with your mid and long term financial goals, and there are some saving strategies that we all should be employing – such as setting up a savings account for emergencies.
Here are some important reasons to save:
Be prepared for an emergency
Unfortunately, life’s happenings are not always in our control and sometimes these unexpected situations can be costly. Something seemingly small such as the washing machine breaking or catching that nasty flu going around the office can set you back financially if you are not properly prepared. Having an emergency savings fund will aid you in these situations and help soften the financial blow. Ideally, your emergency savings fund should be about three to six months of your expenses.
Start saving for retirement early
Another thing we cannot control in life is the fact that we will get older and have to retire one day. The sooner you start saving for retirement, the better! You want to make as much interest on your contributions as possible. If your employer contributes to your retirement as part of a benefits scheme, you should try to match this. A good rule of thumb is to try to contribute ten to fifteen percent of your gross income to your retirement.
Save to put down a deposit for a home
If you are a person who one day dreams to be a homeowner, the best way to start working towards this dream is to save for a deposit. Your power to negotiate will go a lot further if you have a lump sum of money to put down, and you may receive a better interest rate on a home loan. Saving up a deposit for a home may also make your monthly bond repayments more affordable.
Saving for your goals
You may also have specific goals that you are saving for. Perhaps you are planning on buying a new car in two years or you want to take a trip overseas one day. Although these are considered luxury items, you can definitely still feel rewarded after saving for them, just make sure you prioritise saving for more important and essential things such as your retirement.
Save for your education
Saving up to pay for your education can be considered investing in yourself and in your future. If you are spending time and money on becoming more qualified, you are contributing to your future earning power. Similarly, saving up for your child’s education can be considered investing in your child’s future and their ability to earn an income.
The importance of saving may be common knowledge but knowing what you are saving for and ensuring that your saving strategy is in line with your financial goals and needs will make saving money both more rewarding and purposeful.