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What is the Importance of Saving Money?

What is the Importance of Saving Money?
  • 13th Jun 2022 |
  • 4,387

Saving money may sound very easy, but don’t be fooled by how simple it seems. Saving money can be tough if you don’t have the right money-saving plan, alongside the support of the best tips.

Many studies on wealth expenditure suggest that most people spend extravagantly with a higher income. If you closely observe this in your life, you’ll realize that your living standard improves as your income increases. Unfortunately, when you fail to comprehend that your ‘want’ is not your ‘need’, you tend to prioritize luxuries, spending more than you earn. This leads to a financial situation where you neither save more nor grow your reserves.

What’s the solution to get off this never-ending cobweb of financial dependency? The answer is saving money.

Money savings tips to reduce financial stress

This article discusses aspects related to saving money. Here, we will talk about the best way to save money, the best money-saving plans, the importance of saving money and share some good savings tips to use in daily life.

Why Should You Save Money?

Now, you must be thinking about why saving money is necessary. And what is the importance of savings?

  • Let’s consider an example and understand this. Picture yourself as the new employee who has just started earning. As a young adult fresh out of college, you must have numerous desires. The list goes on, from owning your first bike to buying costly cosmetics to getting expensive gifts for your near and dear ones from your first salary.

  • Having such a lifestyle where you focus on investing in liabilities without any savings can act as a disaster in the long run. You would also limit yourself from creating wealth to survive situations where savings might fall short.
  • This further serves as an invitation to big financial troubles in the future. Therefore, to ensure you don’t land in such a situation, you must understand the importance of saving money.

  • In a world full of lures, saving money from your income requires a lot of sincerity and discipline. But, at the same time, even if you have sincerity and discipline, you will not be able to grow your savings without a decent and wise money-saving plan.

How Much Money Should You Save from Your Salary?

Honestly, this is the most critical question you should ask before moving ahead with a fool-proof money-saving plan. Your salary or income binds you to a financial limit to a certain extent. So, if you are a salaried employee or someone dependent on a monthly income, your focus should be on how much you can save money and not on how much you earn.

If experts are to be believed, ideally, a person should keep around 50% of their income for routine expenditures, 30% for lifestyle, and the remaining 20% for savings.

However, given the reality of life and goals, financial advisors suggest cutting short on luxuries and saving 35-40% of your income if possible. This will help you quickly achieve your short-term and even long-term goals.

Top Money-Saving Tips

Undeniably, you want to get the key to the best way to save money. However, if you look right into your daily life and follow some easy money-saving tips, you can save a large sum of your income.

  • Make a monthly budget plan
  • cut expenses from your monthly budget
  • saying ‘NO’ to credits and debt
  • finding the best money-saving plans and investing in them wisely
  • considering salary hikes and bonuses as savings cutting fines/penalties by timely payment of EMIs and bills.

Best Money-Saving Plans

Mutual Funds (SIPs)

Systematic Investment Plans, or SIPs, are one of the best ways to start your savings and investment journeys. In this, you can start investing with as low as ₹500 every month and slowly increase your contribution in the coming years. Constantly investing for 10-15 years can help you achieve good returns when you need your money.

ULIPs

Unit-Linked Investment Plans, or ULIPs, is another good financial product to help you create wealth in the long run. The idea is to pay a yearly premium divided into investment and insurance. Then, if you face an unfortunate incident, your family can also get the returns and death benefit—a two-in-one solution.

Guaranteed Savings Plan

Similar to ULIP, Guaranteed Savings Plan also allows you to invest a yearly premium for a specific period and give you guaranteed returns over the years. However, the difference here is: ULIP allow you to invest in different options like equity, debt and so on, which provides you with an opportunity to earn an optimal return.

Don’t get confused; both plans are best per the requirement. A guaranteed savings plan is your saviour if you are looking for guaranteed returns to achieve a life goal. However, if you are looking for a much-balanced return with a high-risk appetite, ULIP is your friend.

PPF/EPF

PPF/EPFs are other excellent options for investing and savings. These plans also allow significant tax savings. Another benefit is that the Government runs these schemes; hence, your money is safe.

Reasons why saving money is important

Savings are essential for everyone, regardless of income, consumption, or life stage. Here are some of the reasons why you should start saving.

Gives you a better future

  • Savings can help you achieve a variety of objectives. You can use your money to buy a house, save for retirement, or buy a car. You may safeguard your future, enjoy the most that life has to offer and live a very satisfying life.
  • It pays for your children’s education: With significant savings, you can fuel your children’s dreams and pay for the greatest schools and colleges around the world.

Offers peace of mind

  • Knowing that you have a certain amount saved up for emergencies provides you peace of mind. You can live a stress-free existence knowing that you will not have to suffer if things go unexpectedly wrong.

  • It provides security for your family in the event of an unpleasant incident: By saving in a disciplined manner, you may ensure that your family is well-provided for. In difficult times, your money might act as a cushion for your loved ones, assisting them in overcoming financial difficulties.

Plan your short-term goals

Savings are not only for the long term. You can also benefit from short-term savings. Many people save for a few months before travelling.

Tips to enable savings

If you are new to saving or are having difficulty sticking to your savings goal, consider the steps below.

Limit your credit card usage

Credit cards may provide a short sense of relief, but the exorbitant interest rates can quickly deplete your resources. It is beneficial to reduce your debt and limit credit card expenditures in order to keep your savings intact and increasing.

Keep track of your expenses

If you find it difficult to save on a regular basis, try recording and tracking your monthly expenses. You can then identify non-essential products and seek to save more money by avoiding them.

Create a budget for savings

It is beneficial to create a monthly budget. You can make a plan at the start of each month to target savings and set spending restrictions. This allows you to focus on what is important, decreases the possibility of overpaying, and allows you to save as planned.

Invest in long-term financial tools

It is also vital to watch your funds develop over time while you save. Investing in a long-term investment plan can provide numerous additional benefits. These programmes provide a lucrative rate of return, allowing your money to retain its value and outperform inflation. The savings or endowment plan is one such instrument.

The bottom line is that you should save money without cutting your basic needs and ensure you don’t have an unfortunate financial situation without the proper backup.

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