As most people know, having some kind of savings is important.
Life is unpredictable and no matter how careful one is with their budget, the likelihood of an unexpected expense is almost inevitable. Beyond having a safety net, there are also many wonderful benefits to having savings. With money put aside, you might be able to buy that shiny new toy without going into debt, have a payment for a home, or retire. There are also ways which your savings can earn you money.
Having some kind of savings, large or small, can be very valuable – and, in some cases, vital for reaching your financial goals.
What Does “Savings” Mean?
Savings is traditionally seen as money left over after all the bills have been paid.
In other words, it is money which isn’t immediately paid out, earmarked for a pending expense, or spent on splurges and extras. Viewing savings in this way can be a difficult means to actually accumulate money. Those who take a different outlook on savings can sometimes find better success.
To understand the different viewpoints, here is an example from childhood. As children, many of us had piggybanks. It was a great way for parents to teach young children about the value of saving money. Now, let’s imagine two children. One gets his allowance and buys a few things and tosses the extra quarter into his piggybank. The other child, who often thinks about wanting a new bike, basketball, and remote controlled airplane, puts half of his allowance away every week. Both children are saving. The difference is that one is doing it haphazardly and the other mindfully.
Researchers have done studies showing direct links between looking at the “big picture” and having an increased ability to save money. One of the children in the example saw savings as whatever random amount was “leftover.” The other viewed building savings as a priority. As adults, obviously, there is more to the equation such as bills and expenses. But, at its core, this is the difference between saving with and without a personal savings rate.
What is a “Savings Rate?”
Just like it sounds, savings rate is a fixed amount and frequency at which you save your money. It can be a percentage of your monthly income, a flat amount every year, or perhaps dedicating one form of income to go solely into savings. The amount will differ depending on your situation and may shift over time as your income increases or your expenses decrease. Financial advisors and apps, such as our CalcuTrack™ software, can help you analyze your savings rate data.
Benefits of Setting a Savings Rate
Have you ever written a budget which included a set amount to go into savings? Choosing a savings rate can force you to look at savings in an entirely different way.
Another major benefit to having a savings rate is the ability to plan ahead. This is especially true for those who are looking to retire, save for a home, or make a large purchase in the future. By knowing your savings rate, you can generally predict how long it will take to reach your goal. This can help not only with life planning but also as inspiration. Instead of thinking, “Someday, I’ll have enough money to travel out of the country,” you’ll be able to pretty much know when you can make the trip as long as everything stays on track.
According to a Forbes.com article, a household should be saving three to twelve months of living expenses in case of an emergency. So, even if you don’t have any long-term goals with your money, the importance of accumulating this emergency fund can be vital enough.
Setting your personal saving rate offers a wonderfully focused way to reach your long-term financial goals. The hitch to savings, even with a plan and set rate, is that it takes time for the money to accumulate. Procrastination only works against you. The longer you wait, the further out your goals become.
Don’t put off saving – your goals are waiting for you.