In today's world, saving money is more important than ever. The economy is constantly changing and fluctuating, making the value of your money change as well. That's why it's important to ensure that you're putting away some of your future earnings—whether for emergencies or retirement.
Let's look at the importance of saving money on World Savings Day.
Decrease in the value of money
One of the main reasons that make saving money necessary is inflation, i.e. the decrease in the value of money over time.
Inflation refers to a rise in prices, and it is usually caused by an increase in demand for goods and services. For example, if more people want cars than there are available, we would expect the price of cars to go up because there is less supply relative to demand. Inflation can also occur when more money is in circulation than what is needed for economic activity (i.e., growth). This also causes prices to rise due to excess liquidity (or cash) in an economy.
However, saving money in savings options that can earn a better interest rate than the inflation rate will help you to beat inflation.
Savings create a safety net
Savings can come in handy in several ways.
You never know when an unexpected expense may strike. Think about all the things that could happen which would require a financial bailout: car accidents, medical emergencies, appliance breakdowns and home repairs.
Saving up some extra cash in an emergency fund will mean that if something bad happens to you or someone close to you, then at least there's some money available to address the problem quickly rather than having to borrow from friends or family.
Saving is a habit
Saving is a habit that everyone can develop over time. The more you save, the easier it will get to save even more. Start small and work your way up if you are starting.
The truth is that the more money you have saved, the more money there will be in your savings or investment account.
It is important to make saving a priority in your life instead of putting it off until later when things settle down.
Saving for retirement
If you're like most people, saving for retirement is something you only think about when it's time to get retired. And even then, instead of looking forward to enjoying your golden years, you are likely dreading having to do without all the luxuries that have become necessities in your daily life.
If you want to retire comfortably without worrying about running out of funds, you must start saving early on in your career so that by the time retirement rolls around; there's enough saved up.
Saving money early is essential because when you start saving early, your money will have a longer time to grow.
The first step is identifying how much money you need in your post-retirement years. Several online calculators can help you to estimate the monthly expenses after retirement.
Saving money for goals
Savings are also significant because they allow you to pursue long-term goals without taking on debt or spending all of your income on living expenses.
Maybe there is a dream vacation abroad that has always been out of reach but now seems feasible with enough saved up over time; maybe there's a down payment on a house or car coming up; maybe it's time for an upgrade at work—savings will allow you the freedom and flexibility to make these decisions based on what makes sense for you rather than being forced into something by pressure from others around you who may not understand why saving is so important.
Different investment options, like mutual funds, can help you plan for your financial goals in a manner that suits you and your family's requirements. You can talk to a certified financial advisor to prepare for your financial goals.
Conclusion
Saving money is not only a good habit but also an important one. It helps us to be financially secure and build a safety net in case anything goes wrong.
Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.
