Importance of Saving
Saving for a Rainy Day Fund
Many people don't understand the importance of saving or have emergency savings or a rainy day fund; they don't even have a savings account to begin with. They cannot be bothered about saving and neither do they have the money to save. Life is expensive and with kids growing up, many people don't seem to find an opportunity to save at all. Please consider these ideas as an encouragement for you to be saving for a rainy day.
Saving Mistakes
1. If you have a savings account that is linked to your checking account, it becomes all too easy to transfer money from one to the other and the transfer is usually from the savings to the checking account. Your savings will not grow in this way.
2. A savings account that links to your ATM card is just as bad because you can withdraw from that account at will. Can you really resist that temptation?
3. The use of emergency savings is not an event where you are out of pocket; that is bad planning. Emergencies are of a medical nature or when your car breaks down and you need it for work. An upcoming night out is a treat, not an emergency.
Ways to Save
1. So, how do you emphasize the importance of saving for yourself? A good place to start is to learn about the various types of accounts. Will it be an ordinary savings account? Will it be a cash ISA? Look at putting money on a prepaid card every month and keeping that as your emergency savings.
In essence, you need to step up your financial knowledge. Once you know where to save and how to go about it, it becomes easier.
2. Saving must be factored into your personal budget planning. In the same way as you note your fixed expenses such as rent, utility bills and loan repayments, you should enter an amount as a monthly savings commitment.
The rule of thumb is that you should try to save at least 10% of your income; that would be 10% before tax and deductions. Use the sites that have valuable tools to show you how you can save and which accounts to use.
Since your monthly savings commitments should include one for retirement, many gurus believe that your monthly savings should be closer to 15-25%. It sounds difficult but it is like anything else you commit to; once you have made up your mind, the rest comes naturally.
3. What will happen if your child wants to go to college? Of course, you can apply for personal and student loans but those would have to be repaid. Would it not be far better if you had savings that you could use towards the costs? This will also emphasize the importance of saving to your child as a great example.
4. If you don't know how to make a budget, it's essential that you learn and get on one as soon as possible. This will enable you to curb costs, as you will know how much has been allocated to every entry.
5. Another clever thing to do is to save about 10% of your home's value every year and to use it for repairs, a rainy day fund if you will. Winter storms and normal wear and tear could necessitate repairs and maintenance.
To keep the value of your house from decreasing, it is recommended that it should be painted every 5 -10 years and paint is expensive. You can do the painting yourself to save the expense of a professional painter, but make sure you take the necessary health and safety precautions. Saving for a rainy day is vital.
6. Having more than one emergency savings fund is another way of covering many unforeseen events. One account can be for desperate moments such as a loss of income, and another could be for smaller emergencies.
Either way, commit yourself to internalize the importance of savings.
If you can save a windfall, that would make a big difference to any savings amount. You may have received money as a wedding gift or you might get a yearly bonus. As things stand, a bonus should not be spent on immediate luxuries such retail therapy or a posh night out.
7. Experts will tell you that you must pay yourself first before you pay anyone else. This boils down to the fact that you should treat yourself on occasion, even when saving. If you continually save and don't see small rewards occasionally, you'll become disheartened.
Go ahead and do that manicure or pedicure if you want. Do plan a yearly vacation but keep it within your household budget. Shorter and cheaper may be a good idea. After all, you don't have to fly to Paris every year.
If you have to survive on a small income and if other family members are not working, the importance of saving becomes hard and less of a priority. But these are just the times to save, even if it is the smallest amount. If times become harder, you are going to need your emergency savings account to fall back on.
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This guest article is by Louise Tillotson. If you're unsure about the types of savings accounts available, want to know more about them or prepaid cards, visit moneysupermarket.com for details on the latest rates and bonuses. It's always advisable to compare several accounts to find the deal which suits you and your circumstances the best. The importance of savings cannot be overemphasized.
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