Whether you are saving for a house, retirement, family education costs, or just to be more financially secure — saving for the future can be a bit of a challenging task.No one can predict where the future will lead them, but saving money aggressively can pay huge financial dividends for you later on in life.
While the idea of saving a large sum of money might be intimidating, it doesn’t have to be if you create a plan and get started as soon as possible.
It’s never too late to start saving money, although you may need to be much more aggressive as you get older.
Below I will cover how to save for the future, the steps to get you saving more, and reasons why it is important.
Why is Saving for the Future Important?
It might be pretty obvious why saving money for the future is important, but let’s explore some of the top reasons.
Prepared for emergencies or when life happens
Having money set aside for emergencies is one of the best reasons to save. Emergencies are already incredibly stressful, and not having enough money to cover them can make the emergency even worse than it already is.
With nearly 1 on 4 Americans having to borrow money to cover a $1,000 emergency, the situation is dire for a lot of people.
Emergencies could be related to a car repair, a job loss, a vet emergency and a lot more. When the emergency does finally happen, you’ll be very happy to have that extra money set aside.
Head start on large purchase
Large purchases like a car or house can take a big cut of our net worth. Using credit or a loan to pay for a large purchase is less than ideal, so saving money every month instead will give you a good head start to afford a large purchase.
Whether you’re buying the large purchase out of fun or necessity (cars are often non-negotiable), having some savings to pay for it will also mean you’ll feel prepared to buy it, need to take less out in a loan, and are less likely to have buyer’s remorse.
For education purposes
Getting a higher education or a better degree can help your career prospects and pay off in the future.
But college can be expensive, and getting a large student loan debt might make your situation worse. Don’t worry, there are plenty of alternatives to college that are more affordable too.
That’s why saving up a little every month could help you pay for an additional certificate or degree that you’re thinking of pursuing.
Freedom to pursue new opportunities
Having savings in the bank will offer something we all crave: freedom. Build your savings will make it easier to leave that job you hate, allow you to switch careers easily, or even take a gap year between jobs.
Saving will also give you the peace of mind that you don’t need to be stuck anywhere, and will give you the freedom to pursue a career that is fulfilling.
Reduce financial stress
We’ve all been in a situation where we wondered how we’d pay the bills next month. Money is tight, and it can get very stressful.
You may also be worried about what would happen if you lost your job, or how to afford the best education for your kids.
Having one year of living expenses saved up means you’ll have enough time to find another job, pay for large expenses and fund retirement accounts.
Not having enough money is stressful, so take care of your stress levels by making an effort to save every month.
Saving for fun activities
Some fun things are expensive! You don’t want to have to pick between saving money and having fun, you can do both.
Money gives you freedom, and sometimes you’ll want that to be something fun. Maybe you want to book a nice trip to Europe, finally upgrade your car or buy those Airpods.
If you set some money aside every month specifically for fun activities you’ll be able to complete the purchase without any guilt or worrying that you “can’t afford it”.
Future Family/Generational Wealth
Do you want to leave any money to your children? And their future children? Your current financial management will impact how your children and the next generations manage their money too.
Leaving a financial legacy could help your children have a good education, buy a house and get a head start on their career.
Saving every month into a tax advantaged account like a 529 will allow you to build generational wealth tax free.
Looking to achieve FIRE
FIRE is the acronym for Financial Independence, Retire Early.
Financial independence is about reaching the number of investments that will allow you to withdraw enough to live on for the rest of your life.
Once you reach your number, you’ll have the freedom to leave your job, retire and do whatever you want with your life – be that traveling, helping others, or starting your own business.
Steps To Save Money For the Future
1. Create a simple budget
Having a budget will help you assess your current financial health and make a plan for the future.
Start by keeping track of your expenses; do this through a free budgeting app like Savology, or simply export your bank statements every month and use an Excel spreadsheet.
Once you know where your money is going, make a plan for what you want your money to do in the future.
- What percentage of your income do you want to put to savings?
- What percentage should be for holidays or for wants?
Explore different budgeting methods such as the envelope system, 50/30/20 budget and zero-based budget and see which one works best with you.
Making a plan and sticking to it is one of the best ways to get into the habit of saving. Consider even setting up an automatic transfer from your salary to your savings account so you don’t even have to do it manually.
2. Get your debt in control
Your monthly debt payments can take a huge toll on your emotional and financial health. You feel stuck in this cycle of debt where you can’t get rid of these financial commitments.
Get your debt under control by paying it off as soon as possible, following either the debt snowball or debt avalanche method.
Once you’re rid of that debt, add the extra amount to your savings.
3. Master instant gratification
Many of our purchases are made on impulse, whether it’s to escape from an unpleasant feeling or to feel more in control.
Learning how to identify the feelings of urge and mastering instant gratification can save you money in the long run.
Instead of purchasing something immediately, make yourself wait for 30 days before making the purchase. If you still want the item after 30 days and you have the money, then you can buy it without any guilt or remorse.
You’ll save some money if the urge passes and you don’t buy it, and you’ll also save money by setting some money aside to purchase it.
4. Start paying yourself first
Paying yourself first is one of the best ways to get into the habit of saving.
It’s very simple: every time you receive your paycheck, take a percentage and set up an automatic transaction directly to your savings account.
Every time you get a raise, bonus or a tax refund, send it directly to your savings account.
Instead of waiting till the end of the month to see if there’s anything left to save, make the saving a priority.
5. Cut back on major expenses
Large expenses can be another huge suck on your money, whether it’s a car, a holiday, or a house. Instead of spending tons of money, look for other ways to satisfy your needs.
For example, housing is one of the major expense. Consider moving elsewhere to save money.
Additionally, look for ways to save money on food, cut back on other extensive spending, etc.
If you’re considering a large purchase, save for it over a period of time rather than buying it outright. Implement the 30 day rule, and stay away from any shops or websites that urge you to buy large items.
6. Use compound interest to your advantage
Compound interest is your friend when it comes to saving for long term goals such as your child’s education, your retirement, or a house deposit.
Make sure to maximize your tax contributions, open tax-advantaged accounts and invest in the stock market through low-cost index funds. Compound interest is the key to making money work for you over time.
7. Create specific savings goals
Saving can be made fun by having a clear objective in mind. Set up separate accounts with the name of the object or goal you are trying to reach.
Whether it’s for the wedding, a vacation or a new phone, seeing the money accumulate over time can be very rewarding.
Start with a small goal, and see what it’s like to be able to afford it and buy a small fun item like a phone or a gift.
It will give you a bit of a moral boost and encourage you to save for other large goals like retirement.
8. Level- up your income
While this post is about saving money, it can be difficult if your income is lacking. After all, you can only cut so much back in your spending to save. But with income, there is no ceiling of your earning potential!
Figure out how you can make more money from your job, ask for a raise, or consider job hopping to get a pay increase.
And don’t forget, your job is not the only way to make money! Look into extra ways to make cash, whether through side hustles, freelancing, or under the table jobs.
But the key thing to remember here, is that additional income should be put towards your savings goals immediately. Basically, pretend that money does not exist so you aren’t tempted to use it (unless it’s used to pay down debt faster).Are you saving for the future currently? What steps are you taking or what has helped you along the way? Let me know in the comments below!