There are plenty of articles out there on saving money, but most of them don’t answer one question, which is why do you need to in the first place? These articles are written as though doing so is self-evident, but if you are young and have no dependents, especially if you are making a good income for the first time in your life, you might wonder why you shouldn’t just spend all that money on things you want. In fact, saving money is especially important when you are young. Money put away in investments at this time will grow to be worth far more in several decades than what you put away in the last 10 or 20 years before retirement.
Build an Emergency Fund
You have probably heard that you need an emergency fund, but you might continue to put it off. If you have health insurance, car insurance and home or renter’s insurance, you may assume those will cover any unexpected expenses, and you may have credit cards in case they don’t. Unfortunately, insurance doesn’t always pay for everything. Some or all of your policies may have deductibles, which is the amount you have to pay before the insurance kicks in. Furthermore, not everything is covered by insurance. Finally, the problem with relying on your credit cards for emergencies is that they usually have very high interest rates, and your debts can mount quickly.
Avoid Credit Card Debt
Emergencies are not the only way credit card debt gets out of control. Using your credit card to pay for vacations, clothes, electronics and more instead of saving up and paying for those things means you end up spending a lot more in interest. You may be even more tempted by the minimum monthly payments if they are very small, but that means you can spend years paying a lot of wasted money in interest fees.
Spend on Things That Matter
Saving money doesn’t mean you never spend on something you want. It means you make sure you only spend when it matters. Just as you don’t want a chunk of your income going to credit cards, you may also want to look at the interest rates on your student loans. You may be able to get better rates if they are lower than when you took out the loan or your income has increased. You may also be able to save on interest rates by refinancing your home and your car.
Retirement Savings
Retirement may seem a long way off, but this is another great reason to save money. You may be able to retire early or plan for a retirement in which you travel or fulfill your dreams in other ways. Furthermore, many retirement plans offer tax savings and can be borrowed against in certain circumstances, which can sometimes be better than taking out a loan. This is also one of the easiest ways to save. Your company may be able to automatically withdraw a portion of each paycheck and place it in your retirement account.
