Taking a little time to plan out your goals for the future and budget for them is one of the most prudent things you can do. It can be hard to predict what the future will hold or even anticipate what you’ll want from life. But creating even small saving goals can help you feel prepared and in control.
Prepares you for all scenarios
Who knows what the future is going to throw at you? Your car could break down; serious illness could occur; you could lose your job; a global pandemic could break out. So it’s essential to be prepared for every conceivable scenario.
If you didn’t have savings, your options for facing unexpected expenses would be limited. You’d have to borrow money from your friends or family or take out a loan that could put you in debt. So, an emergency fund could give you better security.
It’s hard to know how much you should have in your emergency fund. But, most people generally recommend having three months’ living expenses to hand. Since everyone’s situation is different, it’s best to talk to a financial expert to get a sense of what you specifically need. There are money made simple apps that have made it easier to organize money.
It’s good to keep your emergency fund in a bank account you can’t access easily. This will stop you if you are tempted to withdraw funds for a new pair of shoes that you don’t need.
Read more about budgeting here.
Saving gives you freedom
It can be challenging to allot your cash into a savings account. Why would you save it for later when you can spend it on something? But part of the reason you should save money is that you never know what you might want or need in the future.
You can see how having some money set aside gives you freedom. If you ever wanted to switch jobs, you could spend a while job hunting while using your savings. Or, if your car needed repairs, having good savings would allow you to pay for parts or even get a new car.
You’ll need to decide how to save. What are your financial goals? If you want to take a year off work to travel, you’ll need a reasonable estimate of how much money you will need for travelling and covering your current living expenses.
Or, if you just want to save money for your financial freedom, try setting a specific amount aside every month. Take a look at your bank’s app to see if it can automatically set a specific amount aside every month.
Saving allows you to take calculated risks
Another reason people save money is to build their cash reserves to allow themselves to take calculated risks without worry. It can be challenging to pursue your passions without savings. Say you wanted to change jobs, for example, or start your own business. You will need financial backing, but you’ll also need enough money to live without income for a little while. You can even invest some of your savings without fear of losing too much. So, putting a little money into savings is essential.
Saving gives you financial security
Saving money gives you security for the future and makes your life easier. Having savings means you will be able to maintain your current lifestyle long into the future without worrying about loans or other financial products.
If the market changes while you’ve begun saving for retirement, this can dent your savings as you are tempted to dip into them. You’re trying to pay your mortgage, car loans, tuition, etc. But, setting aside some of your income for retirement at this early stage can boost your fund.
You’ll boost your money with compound growth
When investing your money, you will benefit from compound growth. Like compound interest, you earn interest on top of interest. You get not only interest on your original investment contribution but also on all the interest that has built up over time. This leads to more significant returns!
Think what would happen if you just kept the cash safe in a piggy bank. Sure, you’d have a certain amount of money to use as a retirement fund or for an emergency at some point. But money invested in a financial institution can grow to several times the amount you first invested.
A younger person can invest their money in several long term options, including segregated funds or mutual funds inside RRSPs or TFSAs.
It helps you set a good example
If you’re a parent or a role model to any child, you want to set a good example, right? So what better example to set than modelling financially responsible behaviour? The range of games, children’s bank accounts, and advice banks offer to children nowadays go a long way in helping many children get used to money.
But making that decision to show the children in your life what you do with your money and why and talking about money with them will set them up with great financial management habits to last a lifetime.
You can live well in retirement
What are your plans for retirement? You’d probably like the chance to relax, travel and maybe spend some money on a pricey item or two like a boat, home gym, cottage or home cinema! And what about your children or grandchildren? You may like to help them, but how will you purchase these items? Will your pension cover them? Or are you planning on saving up for them? What financial products could help you achieve your goals? The earlier you start saving for your retirement, the better.
Who knows what will have happened with the economy by the time you have retired? Things may have gotten much better or much worse. But saving for the future is always a responsible thing to do.
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