It’s universally known that saving money should be a top priority, but often our society neglects that and chooses to spend aggressively.
It could be a lack of financial literacy, not realizing how much is being spent due to a lack of proper budget, or a legit impulse to spend.
According to Statista, in February 2021 the personal saving rate in the United States amounted to 13.6%, down from 19.8% in January.
That’s surprisingly pretty good, but if you are on this post then you probably realize you personally need to do better! And who doesn’t want to save more money and feel at ease with their finances?
If you need some financial motivation or looking to dive deeper into why saving money is important, then keep reading below!
The Importance of Saving Money
Saving money is important because it ensures you start to protect yourself against any potential financial emergencies. Additionally, prioritizing your savings helps you remove financial stress and anxiety, curb any debt, helps you build better money habits, and ensures you can reach your future financial goals like retirement.
Three basic Reasons to Save Money
While there are multiple reasons to save money, there are three basic reasons everyone should prioritize putting money aside: to build an emergency fund, for essential purchases, and to build long-term wealth. Most people save money after paying bills and debts, but you should calculate your savings rate first and save, before spending to really boost results.
But there are many other benefits of prioritizing your savings over spending money.
Reasons to Start Saving Money Now
1. Emergency Fund
One of the most important reasons to begin saving money is to build up your emergency fund. This is usually something that anyone in personal finance will recommend.
Well, life happens and unexpected expenses can pop up. And the more prepared you are the easier it is to take care of this “emergency” or “life happens” event.
For example, say your car breaks down and you need it to get to work but it’s going to cost over $1,000 in repairs. By having an emergency fund, you won’t feel stressed about how you are going to pay those repairs.
Try to aim for 3 to 6 months of expenses saved, but I’ve always preferred to get around a year’s worth saved, just in case you lose your main source of income.
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2. Essential Purchases
You might not think the importance of saving money would include essential purchases, since the idea here is saving not spending. However, there are many reasons you want to save money in order to buy certain things as well.
These purchases might include a new vehicle or maybe buying items for your home like a new refrigerator, wash and dryer, or television. Yet these bigger purchases can be expensive and opting for monthly payments will generally come with interest.
If you don’t have the money upfront, you may have to use a credit card, which may have insanely high-interest rates if you don’t have the funds to pay the purchase off quickly.
3. Building Wealth
If you want to prioritize accumulating wealth in your lifetime, you must ensure saving money is key to your financial strategy. When you start to save money, it not only helps you develop good financial habits but over time you increase your amount of cash reserves that you can later invest.
Remember, if you want to build true long-term wealth you must begin investing once you are comfortable with your emergency fund.
You can start by saving money in a bank account that offers interest, that way your money earns some money. However, interest rates are much lower than you would get if you invested in the stock market.
4. Reduce Financial Stress
APA’s Stress in America survey found that 72% of Americans reported feeling stressed about money at least some time in the prior month. And that doesn’t include all the other stress-inducing areas of life!
A great way to get rid of financial stress is by saving more money. It certainly might not reduce all money-related stress in your life, but can remove the anxiety of how you would pay for an unexpected emergency.
Nothing beats having a good night’s sleep, paying your bills on time, and not worrying at all if you were to lose your income or had an unexpected expense. This alone has been my favorite reason to continue to save money.
5. Creates Good Money Habits
When you begin prioritizing money, you are now creating a good money habit! These are financial habits that will better your life and finances now and in the future.
But I found that when I knew the importance of saving money and made an effort, I started to develop other good habits with my money too. I became more conscious of my spending, avoided racking up credit card debt, became interested in investing, and more.
While that was my personal experience, I think you’ll start to notice your money habits change for the better after putting a plan to save more money together.
6. Helps Your Marriage
As you may have heard before, finances are the leading cause of arguments and issues with a marriage. And there are plenty of stats out there over the years, like nearly one-in-three (30%) couples say finances cause the most stress in their relationship.
Fights about money are incredibly common and also not fun. Now saving money and making a priority isn’t a guarantee to stop all money arguments, but it can help reduce the frequency.
Spending money and not having enough due to bills or other unexpected life events is when tensions can flare. By building a financial plan and working together on your finances, it can be a positive boost to your marriage.
7. Gives You Options
Having options in life is always a good thing to have and especially true when it comes to how you create income. One of my favorite reasons to save money and ensure I have about a year’s worth of expenses saved is the opportunity it creates for me.
Maybe you want to explore your own business but will need to have your living expenses covered during this time. Or maybe you want to take some time off and switch gears into a completely different career.
Having money saved can give you some of those freedoms to pursue things you enjoy.
Plus, a job and comfortable income can be taken away from you overnight. Hell, even robots might take your job one day, but having money saved gives you more time to not panic and breathe before making your next career move.
8. Keep You Out of Debt
When you state to practice various money-saving tips, you’ll find yourself less worried about accruing debt. By prioritizing saving and increasing your savings rate, it allows you to pay for things with the money you have.
Certainly, you can still use a credit card, but now you have the cash to pay off that card immediately. And it’s one of the best feelings in the world to be able to pay something with cash and not be worried about interest or being stuck in an endless cycle of minimum debt payments.
Of course, people still go into debt even if they are saving money, but that comes down to have a spending issue. That can be addressed by trying a no-spend challenge or seeking counseling if the shopping is out of control.
9. Prepares You For Life Events
While you might be focused on the present with your finances, saving money for the future must also be a priority. Think about potential major life events where having money saved aside will be very beneficial.
Having money saved might help you with the expenses of a newborn baby, for future expenses as your kids grow older, maybe for your own wedding, etc. Not only are these life-altering events, but they can cost a lot of money.
And while you may have family that helps with some of these expenses, it’s good to have your own cash ready to go!
10. Save For Something You Want
Out of all these reasons, it’s important to save money, I also cannot neglect that you may want to save for something you want. Personal finance is certainly about living within your means, but it also doesn’t mean you can never treat yourself to something you want.
Life is short and it’s about finding a balance with how you spend. The best thing you can do is put a savings plan in place so you can splurge from time to time. Always set aside money for something fun!
Think things like:
- A dream vacation you want to take your family on
- Purchase a boat, jet ski, or old car you want to restore
- That new expensive electronic you’ve had your eyes on
By preparing and saving money, you can spend on something fun without feeling guilty for doing so or going into debt for the purchase.
Why is saving money important? Well, if you plan on buying a home or own one currently, you know that homeownership can cost some serious money.
If you are looking to buy a home, you’ll want to have money for a downpayment and closing costs. Additionally, you’ll want some saved for any repairs, maintenance, or new appliances.
And even if you own a home now various expenses, remodels, and other repairs can be expensive. You might want to set up a separate savings account just for household needs. And yes, you can have multiple bank accounts.
12. Money Doesn’t Control You
When you are constantly working for money to stay afloat, it can hold power over you. Money is in control of you and what you do, especially if you found yourself paycheck to paycheck.
But when you make saving money a priority, you put yourself in control. Money becomes a tool for you and you no longer feel like you have to chase money to get what you want.
Think how comfortable you’d be knowing you have 6+ months of expenses saved and have plans for what your money is for and will do. Ahh!
13. Reduces Financial Risk
Have you ever really thought about your current financial risk? It’s not something pleasant to think about, but it can really enlighten you about your current state of financial health.
For example, let’s say you have $5,000 in a savings account and you lose your main source of income. And let’s say your expenses are $2,000 per month.
Without any stable income after your job loss, in 2.5 months you deplete your savings and need to find ways to pay your bills. That presents some serious financial risk to you by only have $5,000 in your savings.
By saving money and building your emergency fund, you reduce the risk of going into debt, won’t get behind on bills, and can avoid having to declare bankruptcy (pending how bad things can get).
14. Increase Financial Independence
Potentially one of your life goals is to reach financial independence, retire early (FIRE). It’s a much more common dream and goal for many people today who do not want to work well into their 60s.
And there are plenty of variations of FIRE, which I’m linking here:
Although you will need to invest to help you achieve financial independence, it begins with saving money. This increases your opportunities to reach FIRE, to leave that job you don’t want to work for, and have money to cover your necessary living expenses and medical needs (since you are retired early and won’t have access to social security or medicare.
15. Leave A Money Legacy
When you grow your family, inevitably you might start thinking about how you will prepare them in case of your untimely death. While you can get an affordable term life insurance policy with Bestow, you should still financially prepare in other ways.
By handling your finances now, eliminating debt, and saving money — you ensure there is no financial burden on your family when you are gone.
Plus, you can leave a great money legacy and know your family is set.
Whether you want to boost your education or be prepared for when your children get older, saving money loosens the burden financially when the time comes for further education.
College is expense! Daycare is expensive! Private schools are expensive!
And even though there are plenty of alternatives to college, some of those educational options will still cost money. So starting to save early and thinking about education costs will make your family’s life much easier in the future.
Put a plan together for your kid’s education (or your own if you are interested in going back to school). Look up ways to save money for education, like a 529 plan for your kid’s education. Your future self will thank you for planning so far ahead.
17. Let’s You Have More Fun
I’ve mentioned that saving money is important for something you want, but it can also enable you just to have more fun overall.
So many times when I was in my 20s and could not afford to go do things with my friends, which made me miss out. But as I began saving money, I didn’t feel guilty about doing things and spending money on experiences.
Having that buffer of cash allows you to feel more freedom to get out there and do things, without crushing your financial health.
You still want to have some spending moderation in place, but when you consistently save you know you’ll replenish what you spent and that it won’t put a big dent in what you have already.
Saving money can be challenging pending your expenses and income, but you don’t always have to live stingy to boost your savings rate and get small savings wins. Analyze your spending, create a budget, and work towards your financial goals.
Also, find out what will really motivate you to get started and stick with the process of saving. Is it all these above options? Or is it very specific ones that resonate the most with you?
Whatever it may be, you’ll find that saving money will be critical to stability and more happiness.