Almost everyone is confused about the logic and the reasons behind saving money. The average person may think that when they have enough money to pay for their needs that there is no reason to put aside any extra money each month. However, saving this little amount of money each and every month is very important. While the reason varies from one person to the next, everyone saves for some specific purpose. Below are seven reasons which you should consider when saving your money.
1. Saving for Emergency Funds
Be it an unexpected car repair, your emergency appendectomy or a sudden and unplanned job loss; an emergency fund is necessary to cover unexpected expenses. Ideally speaking your emergency savings fund should be about three to six months of your expenses, but could be up to a year. The more people you have relying on you, the more important it is to have a large emergency fund.
2. Saving for Retirement
Retirement is yet another reason for you to save your money. And the mantra behind it is that the sooner you begin to save the less you will have to save in the future. Someday you’ll either want to retire or have to retire, and having enough money saved will make all the difference in how you’re able to live. Nobody thinks they have extra money to contribute to their retirement accounts, but it is of great importance that you do contribute to your retirement as early and as often as possible. Use whatever programs or incentives that tax laws and your employer offer and get started as early as possible.
3. Saving for the Down Payment for a House
If you hope to own a home, you’ll need to save for a downpayment. The more money you save the better you’ll be able to negotiate when it comes time to buy. Also, having money saved for a down payment will get you improved loan agreements with lower interest rates, lower payments, and likely save you money on private mortgage insurance (PMI).
4. Saving for Holidays and Other Luxury Items
Whether or not you’re prepared for them, holidays come again and again each year. If you don’t have money saved to buy gifts, attend parties or afford other traditions, you’ll have to forego them or put them on your credit card. The same goes for a vacation. Having money saved for holidays and vacations is yet another important reason to save money each month. After all, no one wants to spend the next few years paying off a vacation or gifts that they financed on their credit card.
5. Saving for a New Car
Cars are depreciating assets. A new car purchased for $20,000 is worth thousands less the minute you drive it off the lot! Because of this, loans can be difficult to get without a significant down payment. In addition, having money saved for a car can lend great negotiating power. After all, you won’t need to rely on their “financing” department and you can negotiate in cash terms instead of loan and payment terms. Furthermore, having money saved for a car will save you money in future months by either eliminating or reducing your car payment. Use the extra money to save for one of the other reasons.
6. Saving for Sinking Funds
The money that you keep aside for future repairs or improvements on your car, home or other possessions is also know as a sinking fund. Having money available for routine and maintenance costs is important. If you don’t have it, it will either cut into your budget or you’ll have to pull money from your emergency fund or from your credit card.
7. Your Education
Every year more and more people attend higher education to better their careers. Whether its a niche study, a masters or doctorate degree, or other job training that can put you ahead, you’ll want to have some money saved so that you can increase your resume skills and thereby increase your future earnings. Not only is this saving money, but its also investing in yourself, which can yield years of higher income and savings that can be used for all of the other reasons above.