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Like most young adults, when my wife and I left college, we had little to no assets and made entry level salaries at our jobs. Back then, we barely made enough money to support ourselves, much less save money for the future.

Over the years, however, we’ve been able to slowly build up a small savings account and several different retirement accounts.

We’ve experienced first-hand the peace of mind associated with having an emergency fund (savings account you use for financial emergencies) and the excitement of watching our retirement accounts grow to something substantial. When we started seeing our retirement accounts grow over time, it motivated us to invest even more.

Because we’ve experienced both the pain and frustration of not having any money saved and the benefits of saving money, I’d like to share the reasons why I think it is important to start saving money.

Reasons Why it is Important to Start Saving Money

Peace of Mind

Emergency Fund

An emergency fund is money that you’ve saved for financial emergencies like a major repair on your house, an accident, a medical event, losing your job, etc. It is important to save money for an emergency fund because you don’t know what the future holds. An emergency fund provides peace of mind because it allows you to easily navigate small financial bumps in the road and make larger problems more manageable.

Financial Flexibility

Another reason you should save money is that it provides greater financial flexibility. If you save, you’ll have a little money for unforeseen difficulties (different than emergencies) and treats for your loved ones.

As an example, when I was growing up our school offered a few opportunities for “special” field trips to places that were a little further away than maybe a local museum or park. Especially when I was younger, our family often didn’t have enough money for these trips, so I would stay back with the one or two other kids that couldn’t go. I understood why we couldn’t afford it and that my parents were doing their best to support us, but I also felt left out.

Having savings makes it easier to afford treats like a field trip for your kids or a vacation for the family. It also helps weather the storm when small difficulties occur like a flat tire or small repair on your home.

Limited Financial Opportunities

In order to take advantage of life’s financial opportunities, you need to have savings. Some opportunities that you might miss include a dip in the stock market or housing market (If only I’d bought a house or a substantial amount of stock right after the downturn in 2008), a large purchase that goes on sale for a limited time, a business going out of sale, a collector item that’s on the market for a limited time, etc.

Sure, you could use credit for a few of the items listed above, but you’ll ultimately have to pay it back with interest (which at least partially negates the financial opportunity).

Job and Business Opportunities

Have you ever dreamed of owning your own business? Or, are you in a high paying job, but don’t love it and need a change? If either of these scenarios describes you, you need to save money.

Without savings, you won’t have the funds you needed to start a business (You can get credit, but most lenders aren’t going to give you anything without a little skin in the game).

To leave that high paying job, you need to lower you expenses and save money, in order to be able to accept the job you love, regardless of the pay. Without savings, you’ll be stuck wearing golden handcuffs the rest of your career.

Credit Score Maintenance

Are you looking to borrow money for a large purchase like a car or house? If so, having a savings account can help you maintain and improve your credit score closer to the large purchase. When you have savings, you have some financial flexibility that you can use to strategically pay down debt to a certain amount to improve your credit score.

For an example, let’s say you’re planning to purchase a house in the near future, but you checked your free credit report and noticed that your current credit card borrowing is 44% of your credit card limit. You also know that you need to get it down to less than 30% to get favorable rates on the house. Since you have savings, you decide to use some of your savings to pay down the credit cards to just below 30% credit usage, and then reach out to the credit card companies regarding an increase to your credit limit. They approve because of your payment history and you’re now sitting at 20% credit usage.

Without savings, the scenario above most likely would have been a lot different. You probably still would have been approved, but due to the poor credit score, you would have had less favorable terms and a higher interest rate. You would be paying more over the life of the loan and because it’s a home loan, you would most likely be paying it for 15-30 years or until you sold the house.

Save for Big Ticket Items

If you ever hope to afford the big-ticket items in life, you need to save money. Items like cars, houses, boats, etc. aren’t something you can afford living paycheck to paycheck.

Also, depending on your credit, you may not be able to borrow money to buy in without having money of your own to contribute to the purchase (the larger the purchase, the more likely you’ll need to put skin in the game).

If you start a savings account and plan to save a little each month for the item, before long you’ll have a sizeable amount that you can use towards the purchase. The better your credit and the more you contribute toward the purchase, the better terms and conditions you’ll be eligible for.

Ditch the Credit Card and Pay Off Debt

Once you start habitually saving for the things you want and need in life, you won’t need to borrow anymore. You’ll know exactly how much you need to pay off your debt and you’ll be able to pay it off for good.

When you use your own money to buy things, you don’t get charged outrageous interest rates. You can use the interest you were being charged to add more to your savings or investment accounts.

Education Costs – Both Yours and Your Children

Do you have children that you’d like to send to college one day? There are student loans, but do you really want to saddle your children with massive debt from day one? If you start saving when your children are young, you have the power of time and compound interest on your time to build up their college funds.

Also, the type varies by state, but you’ll have access to a state sponsored 529 plan which provides tax benefits to the money you’re saving for education expenses. If it’s an education savings plan, you retain control of the account, you can spend the money on education expenses (other than just tuition) for higher learning, and switch beneficiaries at any time.

Financial Freedom

If you ever hope to retire (or at least be free to pursue the work or hobbies you choose), you’ll need to start saving money for the future and make it start working for you.

Money Working for You

You need to start saving, so that you can put that money to work for you.

I like to think of each dollar I earn as a potential worker. If I spend it on things that don’t generate any return, then I’ve simply traded my time at work for that thing. If I spend it on an asset that generates a return on my dollar, then I’ve hired a worker that will continue to make money for me as long as it’s invested.

Average Life Expectancy and Volatility of Social Security – Need More to Retire

Social security is not currently self-sustaining, even at the rates it’s currently at, it won’t support you alone, and people are living longer and longer, so you’ll need more in retirement than your parents.

If you ever hope to retire, you’ll need to save money and put those dollars to work for you.

Do you really want to work forever?

Giving Back Money or Time

Do you want more time or money to give back to your community, loved ones, etc.? You can give a little bit here and there, but to really commit to giving back, you need to save money. If it’s money you’re hoping to give back, you’ll have more money to donate. It it’s time, that extra money may afford you the opportunity to work in a role that gives back, or retire early and give back full time.

Conclusion

There are many different reasons why saving money is important, but they all boil down to one thing: saving money will improve your life. Saving money will improve your peace of mind, opportunities, and give you the ability to one day be financially free. To get started, create a budget and make sure to include a category for saving money. Begin today and start improving your life.

What reasons do you have for saving money and why is it important to you? Why did you start saving money initially?

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