Saving money is one of the fundamental components of financial planning but it’s one of those things that is so much easier said than done. Far too many people do not save money. They squander everything they earn and never bother to put aside some cash to build up their savings.
Farmers are even doing better than most of us. They do not eat or sell everything they harvest in their farms but keep a portion of their best harvest as seed for the next planting season.
Likewise, if you won’t keep a portion of your earnings as seed for saving and investing for your future, you will never increase your wealth or realize any financial success.
You may also want to read this article: Retirement Planning: Why Save And Invest For The Future
- 1 Importance of Saving Money
- 2 The Two Approaches to Saving Money
Importance of Saving Money
Why should you take saving seriously?
Let’s look at four reasons as to why you should be saving a portion of your money regularly:
Reason No. 1: Saving for Life Uncertainties
Life is full of uncertainties. Anything unplanned and unpleasant can happen. It can be a job loss, a breakdown, an illness, or a natural disaster. The financial implications of these emergencies can be devastating if you are not properly prepared. Having some cash stashed away as savings can minimise tremendously the effects of these unplanned events.
Reason No. 2: Saving to Avoid Getting into Debt
Do you have some stuff you want to buy? Saving for these items in advance is a smart move. Why? Because the main reason people go into debt is because they make purchases that they haven’t saved for in advance. They usually use their credit cards and personal loans which if not paid in full, they result in debt problems. A well-funded savings account, designed for such purchases, can allow you to purchase these items straight away and avoid the downside of borrowing money.
Reason No. 3: Saving to Achieve your Life Goals/Dreams
Perhaps you have dreams or goals you want to achieve that cost money. It might be saving for retirement or education for your children or even yourself, buy a new home or car. Having a savings plan or program can help achieve these goals without getting into debt.
Reason No. 4: Saving is a Big Stress Preventer
Looking at reasons 1 to 3, you will agree with me that if you have not saved for life’s uncertainties, gotten into debt (and you are unable to repay) for things that you would have saved for and you didn’t save and invest for your retirement or child’s education, you will undergo alot of stress trying to sort out your financial problems. So, saving money is a big stress reducer if not preventer. It gives you peace of mind and a sense of financial security.
You may also want to read this article: Retirement Savings: 5 Key Factors to Retirement Planning
The Two Approaches to Saving Money
There are two approaches to saving money. Namely,
1. Setting Aside a Portion of Your Income as Savings
When you can maintain your current lifestyle and still have some cash remaining from your income, you can put away some savings for meeting your financial goals.
However, it doesn’t matter what you earn. Saving money really isn’t about how much we make. It has been statistically proven that life-savings have almost nothing to do with income. This means it doesn’t matter if you are making Ksh 15k or 150k; what does matter is what you do with your money once it’s yours.
The first step is deciding that it is possible. Far too many people think they can’t afford to save money. If you are one of those people, try to start thinking of saving as a necessity. Treat it as an expense in your budget.
2. Living Frugally
When you are unable to set aside a portion of your income as savings, the other approach you can take is decide to live a frugal life. This will involve reducing or eliminating waste, cutting down on some stuff, using cheaper alternatives e.t.c.
Living frugally will help you cut down your household expenses hence you start having extra cash that you can use to jump start your savings plan.