Importance of Savings for Every Individual

Saving money is the first and most important step towards building wealth and achieving financial security. As such, you must understand the importance of saving money and getting started early is a good idea. Saving money will ensure that you are able to brave through the inevitable uncertainties of life with relative ease. 

Moreover, consistent saving will give you peace of mind and will enable you to live life to the fullest. There are a number of reasons to save, your saving goals will depend on your financial goals and priorities. Saving goals can range from building a comprehensive emergency fund to saving for your child’s education. 

The following steps should be taken if you are new to saving or are having trouble staying committed to your saving goal:

• Control your credit card swipes: Controlling your credit card spendings is a smart way to maximise your savings as the exorbitant interest rates can deplete your funds. Keeping your debt minimum is a surefire way to enhance your savings and financial health. 

• Maintain an expenditure log: If you struggle to save money consistently, consider keeping a journal of your monthly bills. This will provide you with a comprehensive view of your spending activities. Avoiding unnecessary expenses can help you save more money without overspending much.

• Plan a savings budget: Having a monthly budget is crucial to establish spending restrictions, and set your monthly savings goals. This allows you to concentrate on what matters, lowers your risk of overspending, and enables you to save as you had intended.

• Investing in financial instruments with longer tenors: An easy way to watch your funds increase over time is to invest over a longer horizon. A long-term investing strategy might offer numerous added advantages for your portfolio. With high interest rates, they allow you to combat inflation and preserve your money's worth. 

The importance of savings and investments go hand in hand. Savings are funds reserved in cash or in a bank's savings account. It is the available cash that may be used for short-term or emergency needs.

Savings typically yield little profit. Alternatively, investments are the money placed into schemes or bonds that deliver greater returns at maturity or the end of a duration. Every month, you should ideally save about 10% of your income and invest between 10%-15% of your earnings. 

Although savings are for the short term but essential to maintain for rainy days. Investments, on the other hand, are for the long haul and help you build wealth to achieve life goals.

Any expense that is essential to your survival or enables you to do your job is a need. A need would include rent or home loan payment, education, electricity and other utility bills, healthcare-related expenses, food and groceries. 

A need is any expense that you may choose to incur but could technically do without. A need would typically include expenses such as entertainment expenses, dining out, travel and vacation, any non-educational subscription services and new clothing. 

To help you understand the two better, consider the table below.

Your saving goals will generally depend upon a variety of factors such as your age, dependents’ ages, life goals, etc. However, a good place to start is building an emergency fund to ensure that the inevitabilities of life don’t set you back financially. 

Typically, your emergency fund should be anywhere between three to six months’ income. Additionally, you may also choose to build a short-term and long-term emergency fund. Once you’ve built an emergency fund, you may begin saving money for specific goals such as children’s education, retirement, vacation plans, etc. 

Your saving goals would depend upon your priorities and responsibilities in life. If you’re in your 20s, you may want to consider setting a small portion of income aside as retirement savings, however, if you’re in your 40s and 50s, you would ideally want to set aside most of your savings as a retirement fund. 

If you’re someone that has dependents, you might also want to save for your children’s education and/or wedding. Other saving goals include saving towards financing a home, funding a move or relocation, purchasing furniture and other home improvement appliances and saving for a car. 

You could also be saving money to start a business or invest in an existing business, or even building one or multiple, sinking funds for various discretionary and mandatory expenses. 

Different saving goals have different investment horizons based on various factors such as ROI, desired liquidity levels, requirement time frame, etc. Take a look at the following table to understand the time frames for different types of saving goals. 

As crucial as savings are, it’s important to recognise that saving and saving goals are extremely personal choices. The first step towards making wise, financial decisions is to have an answer to the question, ‘why is saving important?’. The reason offers perspective and aids in decision making.  

Once you’ve managed to do so, you will be able to avoid unnecessary expenses and save better. Saving is a great habit to cultivate that will not only help you manage your expenses but also help you in your path towards financial security and freedom. 

Here’s a table showing ideal investment options for your saving goals with respect to the rate of interest and risk involved. 

If you’re early in your career and have no dependents, consider saving as much as you can and invest your savings in ULIPs, mutual funds, equities, etc. to help you grow your wealth. 

However, if you’re older and have dependents, choose safer investment instruments such as FDs, post office savings, index funds, etc. for consistent returns and security. Most importantly, it’s never too early or too late to begin saving.