“What should you be saving for?” is perhaps one of the most important questions we should be asking ourselves both as individuals and as a society. Yet sadly it’s a question that is often overlooked. Everyone keeps saying “You should be saving!” or “You should save more!” but without knowing why or what you are saving for, the simple act of saving may seem a bit silly. So here are seven suggestions of things you could be saving for. Because knowing what you need money for will make it easier for you to save.
Before we begin it’s important that we all agree on what “saving” actually means. Saving is the act of not spending money and putting it aside towards a specific purpose. People can save on a daily, weekly or monthly basis.
1. Paying off debt
Being in debt has sadly become a way of life for many people. Sure, that credit card or store card was supposed to just be for emergencies, but you started using it more and more and now the bill is too big to pay off every month! Servicing debt can hold you back from realising your dreams because there just isn’t enough money left at the end of the day. The quicker you can pay off your debt, the less you will pay in interest. So the most important thing you should ‘save’ for is to pay off your debt. At the very least you should be paying the minimum amount, better still, pay a little extra every month to clear yourself of debt quicker.
You’re healthy as a horse, right? There’s no way you could be laid off at work, right? And you haven’t had a car crash in years, right? Future bias is a well documented phenomenon whereby we think the future is going to be filled with positive experiences. This means that people and governments the world over don’t prepare for future emergencies appropriately. The second most important thing to save for is a simple emergency fund, about 3 to 6 months of your monthly salary. You can’t prepare for every emergency but at least you can protect yourself against life’s small knocks that are bound to happen. The best thing you can do is invest your emergency fund into a money market fund, where your money is not at risk and will actually earn interest, ensuring it grows over time.
When you’re in your 20s and even early 30s, retirement seems far away. In reality, it’s never too early to start saving for retirement. And the more time you give your money to grow, the better. So putting some money aside every month into long-term investments like index-tracking Exchange Traded funds will give you the best chance of building a solid nest egg to retire with. You can use our retirement calculator to understand how much you should be investing every month so that you can retire with a sustainable and enjoyable quality of life.
4. Buying a car
Buying a car is very often the largest purchase for most people. However, instead of seeing a car as a major expense many people mistakenly view it as an investment, which is not! Cars are status symbols with many people aspiring to own and drive an expensive car. As such, banks offer lucrative financial options for people to buy their ‘dream car’. However, car financing actually makes the car 30% more expensive. But wouldn’t it be cool to buy a car in cash? Instead of paying 30% more than the car’s sales price, it’s far better to save your money and buy your dream car for cash!
5. Purchasing a home
Buying a house is without a doubt the biggest investment you’ll likely make in your life. Most often people borrow money (eg. a home loan) from a bank to buy their house or apartment. Obviously the cost of the loan comes down to a few key factors:, how much of a deposit you can put down, what interest rate you can get from a bank and lastly how quickly you can pay off the loan. Therefore, saving towards your house deposit is without a doubt a smart thing to do.
6. Maintenance costs
Once you’ve saved up for that car and that home, you’ll have a lot of additional expenses! You’ll need car insurance, home insurance, you’ll have to pay property taxes depending on where you live. Your car will need tune-ups and your house will need repairs and maintenance. You’ll need money in your savings account so your water heater busting or your muffler falling off won’t leave you frantically searching for a cheap, easy solution.
There may come a time in your life when you’ll want to go back to school, or you become a parent and you’ll need to start planning your children’s education. Unfortunately, the cost of education has been steadily increasing over the years, which is why it’s so important to start saving towards those education costs now because the last thing you’d want for yourself or your children is not to be able to provide the opportunities for career development.
The truth is there are many worthy savings and investment goals. It really just depends on where you are in your life, what your dreams are and what you want to achieve. The most important thing to internalise is that money gives you the freedom to achieve your dreams. So start dreaming, planning and investing towards your future so that you can live your best life!