If you read my last blog about budgeting and started your own budget, then you are on the right track to start saving. Saving money is the road to achieving financial freedom.
Saving money is not just for emergencies, although this is one of the main reasons why you should save, but also for the many opportunities saving money can bring including investing, starting a small business, retiring, etc. The list of reasons why you should save could be endless and may differ from one person to another.
Having a clear goal for why you are saving could make it easier for you to start saving. This will also help you stay focused and disciplined in your savings. Here are the top reasons why you should start saving:
Unforeseen expenses and emergencies:
According to a survey from Bankrate, less than half of all Americans are able to pay an unexpected $1,000 expense. The latest government shutdown was a reminder that the majority of Americans do not have enough money saved. A survey that was taken by NerdWallet during the government shutdown tragically showed that:
- More than half (62%) of all employed Americans, if were told unexpectedly that they would not be receiving another paycheck, would not be able to cover basic expenses for more than 3 months.
- 36% of employed Americans, if were told unexpectedly that they would not be receiving another paycheck, would not be able to cover basic expenses for more than a month.
- Lastly, 45% of employed millennials are not able to cover basic expenses for more than a month.
We can never anticipate when an emergency will happen but we can prepare for rainy days. Setting money aside for emergencies or opening up an emergency savings fund that covers at least 3 to 6 months worth of expenses could prove to be a lifesaver in times of need.
Retirement is coming sooner or later and no one wants to sacrifice their quality of life once they are no longer working. Saving money now can help you reach your dreams of retirement, sometimes sooner than expected, and will allow you the freedom to live your best life. A recent report shows that 66% of millennials have $0 saved for retirement and 34% that are saving, are not saving enough. So, how can you start saving for retirement?
- Contribute to your 401(k) or IRA. Many employers automatically enroll employees into a 401(k) plan with contributions starting at 3%. Although that is a great start, you should aim to increase your contribution to 10-15% of your income. If you’re not a full time-time employee or don’t have access to a 401(k) plan through your employer, you can contribute to a Roth IRA.
- Create and stick to a budget. Creating and sticking to a budget can help you gain control of your finances. Treating your retirement contribution as an expense rather than an optional payment is one way to ensure you stay committed to saving.
Grow your money:
Another big part of saving is to have the opportunity to invest in other endeavors, such as starting a new small business or investing your money. When starting a new business, you will need an initial investment to get off the ground until your business starts to generate a profit. Investing, on the other hand, will put the money you saved to work right away. You can then start re-investing your profits and let your money do the work for you. (Learn how you can start investing with Lenme!)
Incentives for savings will be different for each person. Regardless of what your reasons may be, saving money will bring financial independence and peace. All you have to do is to stay focused and stay disciplined!