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You may have asked yourself why saving money is important when you can simply swipe your credit card and pay it off when you have the cash. The problem with this thinking is, what happens when you don't have enough money for something, and your credit cards aren't an option? What happens when you want to make a big purchase, like buy a house but can't because you don't save?
The short answer is, saving money is important because it brings financial security to your life. You'll have money for emergencies and money for the future. You won't rely on debt, and you'll have more freedom to do things that you want. In general, your financial situation will improve.
But, there are many different reasons why saving money is important, and in this article, we'll go over 14 of the best reasons.
Let's jump in.
Table of Contents
1. Money in Case of an Emergency
Nobody expects a visit to the emergency room, but it's something you should plan for. Fewer than 4 in 10 Americans can cover a $1,000 emergency, meaning when a mishap happens in life, most Americans go into debt. If you have a low income and have trouble saving money, check out this article.
Other emergencies that come up that it pays to have an emergency fund include:
- A broken-down car
- Having to replace a refrigerator or washing machine
- Paying your homeowner's insurance deductible when you have a loss
- Loss of income due to sickness or job loss
Be smart with your money and save whenever you can. Even saving $20 a month can go a long way as it will get you in the habit of regularly putting money away. Eventually, you'll have more money that you can put aside monthly, and you can use your $20 savings habit to save even more.
Ideally, saving three to six months' worth of living expenses in an emergency fund will protect you from many unexpected things that come up. To get started on creating an emergency fund, check out this article about how to save $1,000 fast.
2. Reduced Financial Stress
Saving money is important because it helps reduce financial stress. When you have more money, you'll be able to pay off debts and cover unexpected expenses.
Imagine having $50 in your bank account versus $10,000. Which of those sounds less stressful each month as bills come in?
When you make it a point to save money, you'll have psychological relief not worrying about what could potentially go wrong where you won't have the money to cover it.
3. Cushion if You Lose Your Job
The majority of people in America are living paycheck to paycheck. That means that if you lose your job, a financial emergency is imminent, and without an emergency fund to float the bills, debt will quickly accumulate.
Saving even $1,000 can make it so that when life throws unexpected challenges at you, like being laid off from work, you won't have an instant crisis.
You may feel secure in your job, but jobs can end at a moment's notice due to company restructuring, poor company performance, poor job performance on your part, and many other reasons. By keeping money on hand, losing your job will shake up your life less.
If you get laid off from work, follow this guide.
4. Save for Irregular Expenses
Irregular expenses include things like paying more for heat in the winter, paying property taxes annually, covering your renter or homeowner's insurance yearly, or even paying for a car inspection with repairs.
These expenses can be significant, but they're not regular, so you may forget to budget for them and find yourself at the last minute trying to come up with money that isn't there. That's why saving some cash in your emergency fund is helpful because it will cover these uncertainties of life without you having to turn to credit cards or loans.
5. Afford Quality Education
Quality education is an important reason to save money. Taking out student loans can leave you in debt for many years to come and while it may be necessary to take out student loans for some, saving money to offset the cost of college means you'll borrow less money and pay it off sooner.
Quality education also comes in the form of online courses that you take as an adult to better one or more skills so you can make more money. For example, if you're a stay-at-home parent and want to earn some extra money, you might consider taking a copywriting course so that you can do some freelance writing, a side hustle that can be quite lucrative for something you can do in your spare time.
6. Money to Invest in a Business
One day, you might decide to start a business so that you can make more money than you do now. Starting a business takes money, and instead of starting your business with debt, why not start it with cash on hand so you can have the freedom to make decisions and pivot as needed without risking your financial stability?
For example, suppose you start a blog to make money. Blogs can be started with under $200, however, investing more money in the beginning, means you'll accelerate your blog's growth and possibly make more money and make it faster.
Check out this guide on 50 ideas to make money online in which you can use some of your savings to start.
7. Travel with Family
By saving money, you'll be able to have fun going on vacation and traveling with family without having to sink into debt. For example, you might plan a family vacation to a resort in the Florida Keys so that you and the family can hang out on the beach.
You determine that airfare, hotels, rental car, and an estimate of all food, drink, and entertainment will cost $2,400. You'd like to go on vacation at this time next year. Now you know that you have to work on saving $200 per month for one year to afford your trip.
By making this savings goal, you can go on your vacation without stressing about where the money is coming from or by swiping your credit card and coming home feeling guilty about debt.
8. Make Major Purchases
Purchasing a house is one example of why saving money is important. To buy a house, you'll need money to put as a down payment, as well as to cover closing costs. Additionally, the more money you put down on a house, the lower your monthly mortgage payments will be.
Other significant purchases include things like a new car. While cars can be financed, you may have to pay a high interest rate on your auto loan if you don't have a strong credit score. However, you can put more money down or buy the car flat out by saving money ahead of time. This will save you hundreds if not a few thousand dollars on interest payments over the life of the loan.
9. Buy a House
As mentioned above, buying a house is a major purchase where it makes sense to save money. Aside from the initial down payment and closing costs, your new home may need initial repairs, renovations, new paint, and new furniture.
Instead of going into debt, save money ahead of time so that you can spend what you have on what you need for your upcoming home purchase. On top of that, paying a higher down payment will help you avoid private mortgage insurance, which will save you tons of money in the long term.
Additionally, you may decide that investing in real estate is right for you. In this case, saving money is important so that you have cash on hand for maintenance and other issues that come up when you rent to tenants.
10. Use Your Savings to Earn More with Compound Interest
Whether you simply place your saved money in a high-yield savings account or invest it, your money will grow and make more money for you. This is done through the power of compound interest.
The longer you keep your money invested in an account with compound interest, the higher your total earnings will be because interest is earned from your base balance, and then more interest is earned on interest earned previously.
You'll continue to earn compound interest on the money you save, and it will grow faster. Because of this, it makes sense to save and invest while you're as young as possible. This is also a great life lesson to teach your children.
11. More Things Available To You
Saving money is important because by saving money, more things in life will become available to use. Take, for instance, the following:
- With more money, you'll be able to live in nicer places.
- You'll be able to afford college for your children without taking out as much (or any) student loans.
- You'll be able to pursue hobbies and try out different things that you couldn't afford previously.
- You can splurge on yourself and your family more, such as getting fancy haircuts, spa treatments, go out to eat at nicer places, and doing other fun activities in our outside the house.
In short, having more things available to you will allow you to live your best life.
12. Ability to Donate
There are many great charitable causes out there that are helping the less fortunate. When you save your money, you'll have the opportunity to make a difference in the lives of others.
You may donate to family members and friends who are going through tough times, or you can choose a cause that is near and dear to your heart so that you can make a difference in the lives of a lot of people. When you save money, more will be available for this type of giving back.
Giving back is possibly the best thing you can do with your money, as helping others become successful is a truly rewarding thing.
13. Retire Comfortably
When you're in your 20s or 30s, you might not be thinking about retirement. The thing is, investing your money when you're in your 20s and 30s is exactly what will lead you to a more comfortable retirement down the road.
That being said, you'll want to save as much money as possible. When you reach retirement age, chances are that your Social Security benefits will not be enough to live on.
By saving now, you'll set yourself up for a better retirement, so you won't have to work in your senior years if you don't want to.
14. Retire Earlier
Additionally, when you save money when you're young, and in particular, invest, you'll have the ability to retire earlier. Reaching financial independence at a younger age is a goal for many people, and it's an important reason to make as much as you can and then save it.
When you retire at a younger age, you'll have many more years of life to enjoy doing whatever it is you want. That freedom you'll get is one key reason to save money.
Wrapping It Up
In this article, we discussed why saving money is important. Some reasons may be more or less important to you, however, in the long run, saving money will create more freedom and improve your quality of life.
As you're saving money, finding ways to make saving money fun can help with the process.
Why is saving money important to you?