If you have heard it once, you have probably heard it a thousand times: it is smart to save a portion of every paycheck. We all know enough to save. And yet, most of us have very little savings to speak of. According to a survey taken in late 2019, some 69% of Americans have less than $1000 in savings.
Financial experts generally suggest saving the equivalent of one month’s wages in a savings account. Above and beyond that, they also suggest setting aside money for retirement through either a 401(k) plan, an IRA, or some other type of investment vehicle. The basic principle of saving is to put money away now so that you have it later.
If you are not saving, you are making a financial mistake. Even saving $100 per paycheck is better than saving nothing at all. Here are the top three reasons you should be saving:
1. Money for Emergencies
Let us start with putting money into a savings account. The point of doing so is to build up a fund for emergency expenditures. Do you own a car? If so, how do you pay for unexpected repairs? Far too many people use their credit cards. Credit cards are convenient, but their interest rates are significant.
Putting money into a savings account would let you pay for car repairs in cash. In the end, you would spend less because you would not be paying interest charges. The money you would have paid on your credit card could go back in your savings account to rebuild the balance. And this is just one example. You could use your savings account to cover a laundry list of emergency expenses.
2. Establishing Sound Financial Habits
Saving a portion of every paycheck requires a concerted effort on your part. It requires discipline. That is good in the sense that, if you are able to pull off, saving helps to establish sound financial habits. People with a mindset of saving tend to be less impulsive in their spending. They tend to save up for big-ticket items rather than bowing to the artificial need for instant gratification.
Establishing sound financial habits makes it easier to manage your money, too. Budgeting becomes easier, you’re not as likely to get overextended by debt, and you’re more likely to be conscious about spending too much on certain items. These are all good things.
3. Social Security Isn’t Adequate
The first two reasons for saving relate to putting a portion of your paycheck into a savings account. This final reason is all about retirement. You should be saving for retirement for the simple fact that Social Security is not adequate. In fact, it is not even close.
Social Security has always been intended to provide supplemental income in retirement. Lawmakers never intended monthly payments to be the sole means of financial support in old age. As such, very few people can survive on Social Security benefits alone. It’s just not enough money.
If you expect to live the same lifestyle you live now, you are going to have to put money away for retirement. Relying solely on Social Security virtually guarantees that you will spend your retirement in poverty. Do not let that happen. Instead, invest in your company’s 401(k) plan. If none is available, visit your bank and ask about an IRA. There are other options as well.
It has been said that saving a portion of your paycheck every week is an investment in yourself. That is smart thinking. If you are not saving, you now have three good reasons to start.