Why You Should Start Saving Money
Despite who you may be, everyone needs to save money. Building a financial future, whether it's your retirement, your family's future needs or simply attaining your personal goals and getting the things you want, all starts with saving. Saving is the best and most important way to make sure you're financially safe when it counts.
Saving doesn't just mean getting discounts on your purchases. It also means putting away money for a rainy day and pretending you never saw it; creating an emergency fund so that if something does go wrong, you won't be crippled with anxiety.
By finding ways to lower your everyday costs, you'll build habits that can change the way you look at your life, your household and the future. But it starts with some basic principles and some potentially terrifying concepts: Budget! Savings account! Spending habits! Those few words may scare you or fill you with guilt. If you’ve found it hard to put money away, you’re not alone. A Bankrate survey found that most U.S. adults don’t have enough money to cover a $1,000 emergency. But finding the means or the motivation to save isn’t always easy.
If you can step back and look at your patterns of behavior, your dreams for the future and the real impact of your choices every day, you'll be surprised how painless, saving money can be. If you have been putting it off saving, or you’ve barely filled your savings account, here are nine good reasons you should start today:
1. Higher Savings Interest Rates The Federal Reserve is slowly hiking its benchmark interest rate, and some banks are taking notice. Top online banks, in particular, are beginning to pay savers more. The rising interest rate environment has produced an ‘arms race’ among the banks offering the top-yielding online savings accounts and CDs. Savers stand to benefit from this competition now and as rates rise further.
Take advantage of the deals banks are offering. Compare CD rates and savings accounts.
2. Borrowing Costs Are Growing After the Fed raises interest rates, it doesn’t take long for borrowers to notice. Credit card borrowers are typically the first to be affected, as annual percentage rates adjust quickly following a central bank rate hike, much faster than changes in CDs or savings accounts. The rate attached to your credit card or home equity line of credit could change within a couple of months. Financing an auto loan could also become slightly more expensive.
Besides paying down debt and switching to a lower-rate balance transfer card, make an effort to save more money. By saving now, you’ll have extra funds to put toward your debt payments later.
3. The Economy Could Slow Down GDP growth is strong and expected to moderate. There hasn’t been an economic downturn in a while, and some economists think we could see a slowdown within the next two to three years.
Since you can’t predict what’s to come, it doesn’t hurt to ramp up your savings. If the economy slides into recession, it will be nice to have a strong cash position to buffer yourself against unexpected interruptions in income, like losing your job.
One way to save more is to have money withdrawn from every paycheck. You can deposit it into a savings or money market account. The best way to increase your savings is to pay yourself first. Automate your savings by having your bank or financial institution deduct your targeted amount at the start of the month, before you have a chance to spend it.
4. Be Prepared Anything could happen, being ready for the worst is always best. Most Americans have some rainy-day savings, but many of us could do better. Nearly two-thirds of U.S. adults said they don’t have enough money to cover six months’ worth of expenses, a Bankrate survey found.
Americans in general as a whole could probably stand to save more as far as emergency funds go. If you don’t have an emergency fund, now’s your chance to start one.
5. Your Medical Costs Could Soar You may want to set aside extra money for medical care. Even with insurance, you could end up spending a lot of money. According to many reports, most couples will need a quarter of a million dollars for out-of-pockets costs once they retire, assuming they’re on Medicare. So it’s never too early to start saving for retirement.
In addition to contributing to an IRA or 401(k), see if you qualify for a health savings account or a flexible spending account. That way, you have tax-free savings you can use for qualifying medical expenses.
6. Now Is The Right Time You may never reach the “right time” to start saving. Most young people are quick to fall into the trap of believing their later years will bring a huge salary increase and more disposable income to throw towards saving. But whether you’re 20 or 40, there are simply no guarantees that your financial picture will look better tomorrow than it does today. In fact, age might also bring more financial responsibilities — whether that’s in the form of kids to raise or aging parents to support. Therefore, in the grand scheme of things, today might really be the best time financially to start thinking about the future.
7. There May Be No Inheritance Money you count on to help you later might not be there. If you’re waiting on an inheritance to fund your retirement, you might be in for a rude awakening. A study conducted by Allianz Life Insurance Company found that 86% of Baby Boomers are not committed to leaving an inheritance to their heirs. Pair this with seeing their own savings impacted by the 2008 financial crisis and rising health care costs, and suddenly leaving money for future generations no longer seems like the priority it may have been in the past.
Unless you know you have money coming to you, it’s always better to count it out. You’ll be glad you did.
8. Pay Less Tax Now Now who wouldn't want to do that? Saving in a tax deferred account, like a 401(k), means your contributions are taken from your paycheck pre-tax, which will lower your taxable income for the year. Say for instance your salary is $50,000, but you directed 10% of your earnings into your 401(k). This means you will only be taxed on $45,000. The more you save, the bigger the tax benefit.
Be aware that these taxes are simply deferred until you retire. But if this small savings will get you to save now instead of putting it off, it’s certainly a good avenue to consider.
9. Prevent Future Stress Establishing a saving habit now can lower your financial stress in the future.
At this point in your life, you have likely established a habit of paying your bills on time every month. You don’t think twice about doing it because you know it’s not an option. Treating your savings like a bill and getting into the habit of putting money into it at the same time, in the same amount every month will ensure you take care of this financial responsibility with as much care and diligence as all of your other financial responsibilities. Instead of playing catch up and drowning in financial stress down the road, you can sleep easy knowing you’ve already established a plan and you’re sticking to it.
Whether putting money away for a rainy day or retirement, good savings habits can prepare you for emergencies and life's unexpected changes. Most importantly, financial security will ensure peace of mind when you will need it most, during your retirement.