7 Best Reasons You Should Save Money (2024)

Saving money is something we all should do. Still, we often fall foul of squirreling our hard-earned cash because it doesn’t offer the sense of immediate gratification that spending does.

Developing a savings habit is essential to help you get ahead and step toward financial freedom.

You can start to save money with as little as $5 a week away from your budget into a bank account. Some people even save money into a jar at home.

There are psychological benefits to saving money in this way. You’ll find the motivation to hit your savings goal as you see your accumulated savings build up in the jar. However, cash in a jar also makes it easier for you to raid your funds.

Placing your savings into a bank account, such as a checking account is probably much safer for various reasons.

If you opt for a bank account, it’s probably better to pick a savings account with a good interest rate. Doing this will help your savings benefit from compound interest, and you’ll hit your financial goal faster as a result.

If you struggle with saving money, you can add a little bit of fun to your saving efforts. Try to use a money challenge to help you save. The 52-week challenge is an excellent example of a fun money challenge. Money challenges are perfect if you have children and want to get them involved. They also serve as a great way to teach children how to save.

Often, most people face a significant challenge with their personal finance because they think they don’t earn enough to save. If you are on a low income, this probably resonates with you the most.

But don’t convince yourself this is true!Finding money to save can be easier than you think.

If you create a budget and look to reduce your living expenses you can find money to start saving each week.

So, why do we need to save money?

Here are seven reasons why you should save money:

1. Save money for an emergency fund

An emergency fund is arguably the most important reason to save money. I’ve written about the importance of saving for an emergency fund.

A 2018 Bankrupt survey found that only 39% of Americans have enough savings to cover a $1000 emergency. In the same year, the Federal Reserve Board reported that 40% of Americans don’t have enough savings to cover a $400 emergency. And, in 2019, a study by Varo reported that 45% of Americans did not have a savings account at all.

If you don’t have an emergency fund, you should take five minutes to read my article!

When I first started on my financial journey to get out of debt I had no emergency savings. I knew they were necessary. I’d experienced more than my fair share of emergencies, and a lack of savings made these experiences unbearably painful due to stress and worry.

As I started to turn my life around and get my financial situation into better health, I prioritized building up a sinking fund. A sinking fund is just another form of emergency savings.

A sinking fund is necessary for the type of unexpected expense that would knock your budget to the floor if you didn’t have savings.

How much do you need to save for an emergency fund?

Dave Ramsey recommends saving around $1,000 to be used purely for emergencies.

$1000 is a fair amount but don’t worry about starting small and building up your savings over time. It’s better to have a little than nothing!

I started with $100 and worked my way to a savings goal of $500. I did this by saving as little as $10 a week at first. Some weeks I’d include left over spare change. Other weeks I’d challenge myself to find more than $10. It was all I could afford initially. I was trying to get a grip on my debt simultaneously, but it was vital to find a little some to save for emergencies!

After paying off a chunk of high-interest credit card debt, I moved on to build up my emergency savings to $1000.

Once I got one of my credit card balances out of the way, I was no longer paying interest on that balance. This freed up some of my cash to start saving money faster into my emergency savings account.

You’re probably wondering what types of expenses would be classed as an emergency worth raiding your savings account for?

I’m glad you asked.

Check out these three questions that will help you figure out whether experiencing an emergency that warrants dipping into your emergency savings.

I can tell you from experience that emergency funds are indeed a lifeline! It takes perseverance, as does saving for anything, to build up an emergency fund. It also takes discipline to only use for true emergencies.

I fell foul of using my emergency fund for the wrong reasons. I paid off one of my credit cards to save interest. I then had no money available a couple of weeks later to deal with several incidents that would have warranted dipping into my emergency fund.

Don’t make the same mistake! Save the money and keep it locked up for when you’ll need it.

2. Save money for bad times

Saving money for bad times is not the same as saving for an emergency fund. An emergency fund is $1,000 for immediate short-term problems. I define “money for bad times” as saving six months of living expenses. It is a larger pot of money that takes you through more serious events than your washing machine breaking.

Imagine if you lost your job, or you or a family member suffered an accident or onset of health problems. Any of these scenarios could see your income severely reduced or completely cut off.

What are you going to live off if you don’t have any savings?

Job loss and health problems are stressful enough without worrying about how you are going to feed and clothe yourself and your family if you have one.

Yes, you could get a benefit of some kind, but they don’t always cover what you need if they even cover you at all.

I know, I’ve been there!

Let me tell you about the hell I went through, which serves as a great example of the importance of saving money.

In 2009 I suffered a significant concussion that prevented me from working for months. I was self-employed as an I.T. contractor at the time. My income dried up overnight because I could not work.

I had no savings.

I couldn’t afford to pay my mortgage.

I couldn’t access benefits to support my family.

Worst still, I had no income insurance.

It was a nightmare of a situation for a Dad with two children. I could have avoided the stress and pressure that followed with a financial plan that included building up some savings.

It was far from ideal. The financial pressure exacerbated the symptoms of my concussion. I experienced the most intense migraines of my life, and stress did not help. I needed to get back to work fast, but the pressure to return to work hindered my recovery.

Fast forward 12 months, my concussion symptoms had subsided. I began to throw myself into work to deal with the debt we’d created while I recovered. But I was far from out of the woods.

No sooner had the migraines disappeared, I began to experience extreme nerve pain down my neck, arms, fingers and back. It worsened by the day. I transpired I had crushed a disc in my neck as part of the same accident!

This crushed cervical disc was rubbing on my spinal cord. Already debt-laden, I had no choice but to work through the increasing pain. It went from painful to excruciating to intolerable within months. Still, as a result of having no savings, I had little choice but to push through the pain and work for 12 months until I finally had surgery to remove it.

I would not wish this level of pain on any living soul. It went beyond intolerable, made worse by being at work. The stress and pressure in times like these can lead to all kinds of symptoms and ailments, including depression, which can become a downward cycle in themselves.

This ladies and gentleman should serve as a shining example of why you should save money!

Saving money for these extreme life challenges enables you to pay your reasonable living expenses for at least six months. It gives you some financial security and some breathing room to cope with your circ*mstances.

Having that breathing room to recover when dealing with ill health would have been a lifesaver for me! Instead, I struggled with stress, worry and depression on top of everything else.

If you lose your job, this financial cushion gives you time to find something without worrying about your home and family.

3. Save money for College

If you’re young and soon to be heading off to college or university, saving money ahead of the game is the smart thing to do. I was pretty good at saving money for college. I earnt and saved money before I went and then got a couple of jobs at college whilst I was there for some extra cash.

Having money at college made my experience so much easier and a hell of a lot more fun! But the most crucial factor in saving ahead of college is it minimizes the requirement to take out large student loans.

Student loans can take a long time to pay off, particularly if you have to take extensive loans to pay for course fees.

If you’re a parent who wants your child to have the opportunity to go to college, then it’s wise to save some money well in advance.

Many parents start to build up a college fund for their children when their children are still young. Again, a term deposit account’s compound interest with a good savings rate will bolster your saving efforts.

A college education is becoming more expensive by the year. Saving for a college fund will reduce your son or daughter’s need to take out an expensive student loan to pay for tuition fees.

Suppose they complete college without student loans hanging over their heads. In that case, you will be giving them the best opportunity to make headway on saving to buy their own house once they finish.

4. Save money for a house

It’s a dream many have, to own their own home. I have to say; there’s no greater feeling than buying your a place and calling it home.

Buying a house at the right time can be one of the best decisions you’ll ever make, particularly if it goes up in value.

Many of us will be unlikely to save enough to buy a house outright, and really, why would you?

Taking on a mortgage is good debt because you are investing in property, which is an asset. Just don’t overextend yourself by ensuring you can easily afford the repayments against your income. Also, make sure that you could handle your repayments if you faced one of the emergencies mentioned above!

If you are saving for a deposit for a house or mortgage then there’s good reason to save as much as you can.Having a large deposit or down payment means you can access better mortgage deals.

These deals can include cash back offers from your mortgage provider or reduced interest rates. You will access these because your lower loan to value ratio means you are a lower risk to lend money.

Locking in a better deal on a mortgage is worth taking the time to save for a decent-sized deposit. However, don’t wait too long. If property prices are rising, there’s an opportunity cost in waiting. Sometimes it’s better to get a larger mortgage with a lower deposit to get on the ladder.

I’ve seen property prices increase by as much as 30% in a single year. If you get onto the property ladder in any rising market, then you could make significant profits on your property.

There’s sometimes a balance between overextending yourself and not. It all comes down to financial risk. It certainly pays to educate yourself on mortgages, property markets and the economy so you can make sound financial decisions. If you are informed, you can assess the level of financial risk you want to take when taking on a mortgage.

It’s well worth finding a good mortgage broker to give you some sound financial advice. They will find you the best mortgage deals and talk to you about how to structure your loan.

5. Save money for travel

Who doesn’t love travelling?

I want to go and see more of the world one day!

Being financially fit and having savings in place means that you are free to satisfy your Wanderlust. If you travel, it’s always good to have saved funds for a financial emergency and ensure you have comprehensive travel insurance in place.

Travelling doesn’t need to cost a fortune, however. Many find ways to travel on the cheap or free using credit card rewards and fly buys.

Some people travel the world and find work as they go for extra cash or to pay their way. Others are fortunate in that they have jobs or skills that allow them to continue working anywhere in the world to maintain an income.

6. Save money for financial freedom

Financial freedom is my ultimate goal—achieving financial independence without requiring a job, or at least a job that doesn’t feel like work.

Imagine what it would feel like to wake up in the morning and feel like you have options. Feel free as to whether you have a job or stay in a position, travel, or stay at home. Saving enough money to live a lifestyle that gives you a sense of freedom is a reason in itself to start a savings plan.

This kind of freedom may not be possible by saving alone. My view is that you should create passive income streams to support a lifestyle that makes you happy. To have a level of income that supports your living expenses and enables you to continue to build your wealth via investments without needing to keep dipping into savings.

Indeed, it would be best if you were creating a cash flow that not only supports such a lifestyle but continues to allow you to save for the future.

7. Save money for retirement

And this is the future you want to save for. Because who wants to be old and incapable and have no money?

We’re all going to get there. If you save enough cash and create passive income streams, you can retire young.

Many governments now support a retirement account. Here in New Zealand, we have what is called a Kiwisaver. In the U.S. there is a 401k, and in Canada, there is a Registered Retirement Savings Plan. It’s well worth looking into how you can benefit from having a retirement account like this in your country. Sometimes there are considerable tax incentives for doing so.

Having a decent level of savings for a time when you go well over the hill means you’ll have funds to get some quality support and care.

In Conclusion

There are many reasons to save money, but the seven above are the most important reasons for saving.

Saving can be challenging; it takes a deliberate and intentional mindset to ensure that you routinely put money away from your paycheck for the future.

Adopting good financial habits for saving will bode well for your future. You will build wealth faster. Should you experience any stressful unexpected expenses or life challenges, you will be far less impacted.

A good savings plan starts with a budget. A budget helps you manage your money effectively. It enables you to find the money for savings when you think you don’t have it. It also ensures you’re putting every cent of your hard-earned cash to work in the crucial areas of your life.

My budget has helped me climb out of hundreds of thousands of dollars in debt inside five years and go on to buy a million-dollar home a year later. That is the power of a great budget coupled with a good savings plan!