The Importance of Savings
Food, clothing, housing, utilities, and other regular expenses bite deep into salaries. When unexpected expenses arise, extra cash comes in handy. For example, it makes sense to have funds available for car repair, dentist bills, or other unforeseen outlays. Saving also makes it easier to buy that new car or add an extra room to the house. It is hard to finance these costly projects from a monthly wage without cutting into the basic household budget. If savings are not available, this money needs to be borrowed. Each purchase costs much more when interest is paid.
Save for Retirement
Retirement provides one of the main motives for saving. Every person has his or her own dream of a comfortable retirement – free from the stresses of working. Some look forward to a world cruise, or they hope to buy a retirement home by the sea. Without savings to draw on, retirees find it hard to achieve their retirement goals. Incomes fall with retirement, so money saved during working years makes a real difference to life quality.
Save to Finance Further Education
College courses cost a small fortune, but they can open the door to better paying jobs. Some save to finance costs of a higher degree course. Many parents set aside money for their children’s education. While student loans are available, it’s preferable to pay for college from savings. Loans (plus interest) need to be paid back, and this puts a heavy burden on young people at the start of their careers.
Saving Helps Boost Income
While some save to pay for important purchases, others see savings as a way to generate income. Banks and other financial institutions pay interest on savings accounts. These interest rates change in line with economic developments and government policies. The length of the loan also affects interest rates. The longer the saver ties down their money, the higher the interest rate.
Security is another factor that affects income. Saving options with the highest risks deliver the best interest rates. The downside: the saver stands to lose their savings if something goes wrong.
In countries with high inflation rates, bank deposits lose value if inflation exceeds the interest rate. In these situations, people sometimes buy gold and silver coins or antiques to preserve the value of their savings.
Savings and Happiness
Savings can also play an emotional role. Money in the bank contributes to a sense of security. A survey created by Ally Bank suggests a link between savings and happiness. Over 1,000 Americans, ages 25 and older, took part in their survey. Only 29% without savings described themselves as happy. This percentage increased to 34% for those with up to $20,000 in savings. 57% of those with more than $100,000 saved described themselves as happy.
A Good Lesson for Children
Encouraging children to save teaches them about the value of money. If they set aside a certain sum each week, eventually they will have enough to buy that computer, bike, or other dream gift. Once saving becomes a habit, there’s more likelihood they will stick to it.