In this article we discuss why saving money is important. In addition, we discuss creating a budget, how to cut spending, living below your means and how to save 10-15% each paycheck.
Personal Experience: Broke and in Debt
When I was younger, I learned the hard way why saving money is important. In 2008, I was over $50,000 in credit card and student loan debt. I started waking up in a panic in the middle of the night. My mind was racing, thinking of all the debt that I owed. I wondered if I would have enough money to keep from going bankrupt.
Deep down, I knew that something had to change in my life. I couldn’t keep borrowing money and buying things. My income was staying the same but my debt was increasing. So I decided to do some research and find a solution. And this is when I learned why saving money is important.
Today, I’m debt free. I’m not rich, but I don’t wake up at night worried about my credit card bills. Instead, I sleep well knowing that I was able to get ahead by paying down debt. I created a budget to control spending and I quickly figured out why saving money is important. And you can do it too.
The Art of Saving Money
Warren Buffet (famous investor) Knows Why Saving Money is Important
Saving money is a lost art. Historically, people’s lives depended on saving money. If a natural disaster struck or just bad luck, people could fall back on the money they saved to stay alive. Today, life is easier. Credit is widely available to most people and we frequently borrow money for cars, houses and purchases on credit cards.
However, here’s why saving money is important is critical to your retirement. First, learning to save money requires that you learn not to spend your money. Warren Buffet famously said that the most important rule of investing is “to not lose money.” The lesson is don’t spend all your money. Instead, save some money. Saving money is an excellent habit to learn and maintain.
Second, saving money will give you the confidence to seize opportunities when they arise. When people live paycheck-to-paycheck, they waste their time struggling with bills, instead of focusing on future wealth creation. In addition, as your income becomes more limited in old age, you will depend on cash savings to pay for things like medical care and expenses.
Create a Budget
One of the best ways to start saving money is to learn to budget. That is, it’s important to keep track of your money. And a budget helps you achieve that objective. Having a balanced budget means spending less of your paycheck. Preferably, you will have a significant amount of money left over to pay off debt and save for investing. In short, everyone should budget, whether you are a large corporation or just one person.
There are many things to consider when starting a budget. Need help with budgeting? Read more about budgeting in “10 Things to Know Before Starting a Budget.”
Live below your means
Try Not to Waste Money on Unnecessary Expenses, Such as Eating Out, New cars and Designer Clothing
In many cases, frugal living is the cornerstone of financial success. This simply means spending less than you make. A simple monthly budget can assist you in determining whether you are meeting your goal.
Unfortunately, living frugally is not popular in the 21st century. Popular culture dictates what “normal” consumer behavior looks like. And it’s considered normal to go out and spend money at restaurants, on vacations and the like. In addition, it’s “normal” to buy a big house and drive a new car. Clearly, many people do not know the secret why saving money is important.
Financially successful people don’t ascribe to normal behaviors. People with the millionaire mindset only purchase what is needed. They don’t buy new cars or fancy things. As a result, the extra money saved from this frugal behavior is put to work in investments.
Cut Expenses and Control Spending
List Items to Remove from Your Budget: Memberships, Subscriptions, Etc.
No matter what kind of budget you have, its vitally important that you cut expenses. Before you start your budget, you must begin finding areas in your life where you can make cuts.
It is helpful to make a list of what expenses are required and not required. For example, paying for electricity is required; having a spa membership is not necessary.
In addition, you will also want to figure out ways to cut spending. This will help you save more money quickly. Ideas for Budget Items to Cut:
- Memberships (Spa, Gym, Entertainment, etc.)
- Subscriptions (Magazines, news, etc.)
- Eating Out
- New credit card spending
Stop Using Credit Cards
If you are starting a budget, you probably have credit card debt. The problem with credit card debt is not the debt, it’s the interest. Every day that you maintain a balance on your credit card, interest compounds. Compounding interest works against you when you’re trying to pay off debt.
Save Every Paycheck
Put Aside 10-15% of Your Regular Income for Investment
One of the habits that you want to form for learning why saving money is important is to start saving each paycheck. Make it a habit to take 10-15% of each paycheck and save it. After a short time, you will realize that you don’t even miss the money.
First, make saving 10-15% of each paycheck easy by setting up an automatic money transfer, either to your investment account or to your savings account. For example, each time your paycheck is deposited into your checking account, have an automatic transfer set up that moves money into your savings account. Some people even have a savings account that is in a different bank to reduce the temptation of raiding the account.
Furthermore, one of the secrets of why saving money is important is having a consistent source of income. Every month, or each paycheck, smart investors divert 10-15% of their earnings to investment(s). An example would be investing in a 401(k), Investment Retirement Account (IRA) or Real Estate. Year after year, your money will grow and work for you to create wealth.
Finally, saving a small portion of your regular earnings is far from a new concept. Financially successful people have been doing it for hundreds or thousands of years. Read The Richest Man in Babylon to learn more.
Always Keep an Emergency Fund
Unfortunately, emergencies happen to all of us. Having money for an emergency is critical. Many investment and debt consultants recommend that you start with $1,000.
Emergencies can come in many forms. Examples of emergencies you should be prepared for include medical issues, home repairs, car repairs, natural disasters, etc.
Saving for emergencies should probably be one of the first things that you do, even before saving for retirement. Make it a priority in your budget and you will rest better at night knowing you have prepared for the future.
Keeping Up with the Joneses
Don’t Pay Attention to What Others Are Doing: Focus on Budgeting
Don’t get caught up trying to keep up with the Joneses. Who are the Joneses? Mr. and Mrs. Jones are your neighbors who live in the big, two-story house. They just bought a new SUV and a new boat. The Joneses always seem to have flashy, new things.
It takes some discipline and habit changes, but in order to be successful at your budget, you must forget about what the Jones family is buying. Remind yourself buying new things prevents you from getting ahead and puts you further behind in debt. Moreover, what’s important is sticking to your budget so that later you can have financial security.
Finally, if you really want to know about the Joneses, let me tell you. They are in so much debt from buying all those new things that they will probably be asking you for money soon.
Wrap Up: Why Saving Money is Important
Hopefully this article has helped you better understand why saving money is important. It is never too late to start saving and investing. If you don’t have any savings and you are 40 years old, you need to make a big change today. Even if you can’t save enough to reach your goals, start saving anyway. Moreover, every Dollar you save or invest today is growing. Furthermore, the more that you procrastinate, the more difficult accumulating wealth becomes. Therefore, it’s best to start saving today.
It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.
In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.