Savings are typically achieved by setting money aside to be used for emergencies or to meet short-term goals.
Saving money is one of the most cardinal financial planning principles. Generally, saving is a fundamental starting point for you to grow your wealth and also prepare for financial emergencies.
For a better financial standing, it is good to grasp the life lesson of saving money.
Many people save money because it gives them financial freedom and security. It also protects someone in case of a financial emergency. If one has saved enough money, they can avoid debt, pay off loans, live the life of their dreams, and prevent incurring more debt. Due to the many advantages that saving provides, its significance cannot be disputed.
Below are reasons why it is important to save money.
Gaining financial independence is among the most crucial goal for saving money. This entails not relying solely on your salary every month to support your way of life. If you have enough money saved up, you can make important life decisions without fear.
For example, you could change jobs, go on vacation, get married, start your own business, or even retire when you choose rather than work because you have to. If you have financial independence, you can make these important life choices without feeling stressed.
If you are craving financial independence, and most people do, start saving as soon as you can. This way you can start a journey that will see you achieve financial freedom. To start you off, we have discussed mastering the 7 stages of financial independence in an earlier article.
You should put your money to work for you, according to economists. You can increase the growth of your money by receiving better returns by putting it in a savings account. Also, the rising expenses of inflation can be easily avoided by investing in long-term policies, schemes and plans. You can also generate additional interest income on your salary by reducing wasteful spending and developing a monthly savings plan.
Here are some of the best savings accounts in Kenya that you could consider when planning to open an account. While saving is different from investment, it is one of the critical foundations of investing.
Read Also: Investing for Beginners: How to Get Started.
To get out of debt, saving money regularly is an absolute necessity.
You could get yourself into financial difficulties if you rely on credit exclusively for all of your expenses. It's important to have some money set aside so that you can pay off your debts on time each month and avoid paying exorbitant late fees or charges- which contribute to delaying your achieving the debt-free status that you seek.
If you have to rely on credit to cover monthly bills, it's important to pay it off promptly when due to avoid accruing debt over time. By depending on your savings to cover extraneous costs, you can avoid using getting into debt and live a debt-free life which saves you a lot of money over time.
Read Also: 5 Tips to Mastering the Art of Debt-Free Living.
Every day, we all face unforeseen costs that may arise from a health crisis, car breakdowns, home repairs or even a family event.
Having some easily accessible funds is a sure way to ensure that you will be much better able to handle these unplanned costs to you. Having an emergency fund is one way that will help you deal with such unforeseen circumstances. It is usually preferable to be ready for these costs and to have some money on hand as a backup. If you’re wondering how to start an emergency fund, here are some Easy Steps to Create an Emergency Fund in 100 Days. In addition, here are 6 Ways to Deal With an Emergency Without an Emergency Fund which could help you deal with that unexpected dark cloud.
To plan for these unplanned events, regularly save towards an emergency fund which can also aid in budget maintenance and monthly expenditure control.
Owning a home is one of the most important financial decisions a person can make.
Even if you intend to borrow money to buy a house, you will still need to put down some money to get things started with the banks. A bank will not consider loaning you any money until you have saved up the initial amount they need from you which is usually in the range of 10% to 20% of the total amount you need as the purchase price.
It is only possible for you to get the money if you have enough money in your savings that will you be able to pay for this. Additionally, if you can pay all or a portion of the cost yourself, you will save a lot on the interest rate the bank could charge you. With the savings, you can use that money for relocating, repairs or decorating.
If you are wondering how you can start saving without earning much, these 6 Saving Tips For Low-Income Earners will get you started.
Just like with the unplanned expenses we have mentioned above, health scares and other sudden medical situations happen in life whether we like them or not.
The best course of action is to establish an emergency fund that is designated solely for paying for medical expenditures and associated costs. Verify that you only use that money for life-or-death emergencies and refrain from using it for anything else. To avoid worrying about money later or lowering the quality of care due to financial constraints, it is always preferable to be prepared for illnesses as they can strike at any time.
Follow the same steps of creating an emergency fund to create a medical emergency fund that will give you some peace of mind when it comes to taking care of your health and that of your loved ones.
Please note that a medical emergency fund is different from health insurance which is specifically offered for your health and those listed as beneficiaries. Saving for a medical emergency is in addition to the insurance coverage you may have and for medical costs that your insurance may not cover. This could be instances like taking care of medical emergencies of your loved ones like parents, siblings etc who may not be listed as beneficiaries under your insurance cover.
The days of retiring at age 60 are long gone. Today’s generation aspires to put in a few years of hard work and save up enough money so that they can retire young and enjoy life. By saving money and creating a retirement nest egg, you can guarantee that you can retire whenever you like.
Set a goal, put forth the effort to reach it and then decide whether you want to continue working or enjoying your life.
As mentioned earlier in this article, financial independence is one of the most crucial reasons for saving money. You don’t have to rely solely on your salary each month to support your way of life. Bold financial decisions in life are possible if you have enough money. If this sounds good, How to Build a Concrete Retirement Plan and the key factors to consider planning for retirement are just what you need to get started.
The cost of education is high and rising unless you live in one of the countries where good quality education is free or highly subsidised.
To ensure that your children get the best, you should create a savings account for your children if you intend to help them pay for their education. Even though saving for college is expensive, it is not impossible, especially if you begin while your children are still small. This is also a meaningful approach to instil the value of saving in your children. Kids can also contribute towards their college kitty by working part-time jobs, submitting scholarship applications and participating in work-study programmes.
To successfully build a college fund for your children, there are insurance companies that offer affordable policies which could play a huge role towards offsetting college education tuition and other bills.
Almost all insurance companies in Kenya have education policies but before buying into any policy, get to understand how they work. Also, research other ways you can use to pay for education in Kenya.
Compare the saving component of Kenya's education insurance with directly investing your money in unit trusts. The returns of Kenya's education insurance policies are typically low despite years of saving since they do not factor in inflation when paying out. That implies that you are losing.
Most education plans in Kenya are also rigid meaning that in an emergency, it would cost you money to withdraw your money before the set time. It can, however, be advantageous because it forces people who don't already save to do so. Weigh your options and make a decision based on what you find out.
Travelling is not only a good way to discover new foods and cultures while also relieving stress but also a way to rediscover yourself. Many of us desire to travel but it may cost a fortune to travel depending on the destination and accommodation.
Regardless, one of the best things you can do is to save money so you can travel. If you already know where you're going, it's important to budget for your trip and estimate how much it will cost.
If travelling on a budget, adjusting your schedule to off-peak seasons could just be what you need.
Having looked at these important reasons to save money, which is the most driving for you?
Depending on your response, work towards your goal regardless of how much you have to start with. Whatever you have at hand is the foundation that you need to start your saving journey.
In 2023, and beyond, make every effort to save for a rainy day or just for a time when you can travel the world or buy a house or a car.
The journey of a thousand miles starts with one step. Go for it!