How to increase the level of your savings
Savings is income not spent, it is delayed spending and a leakage from the circular flow of income. It’s the money you set aside for future use.
Why do people save?
People save for many reasons, mainly to be able to buy something they need, want or aspire to have or do in the future. Reasons why people save can include but are not limited to:
- Saving for an emergency fund. This is money that you save that you can fall back on if an unfavourable event were to occur. You could use savings from your emergency fund to cover your expenses if you were made redundant for example, during a recession or to finance the costs of a car or home repair or any other emergency you could think of. Emergency funds are great contingency planning tools especially if you don’t have insurance.
- This might be the most common reason why people save which is for a deposit for a property.
- Saving for retirement. This is one of the most important savings you’ll ever make because one day when your time to retire comes you will rely on these savings along with state pensions, to cover any expenses you may have because this will be your source of income unless you have private pensions or other financial products in place.
- A lot of people also save for their children’s education such as university or private schools, but this will depend on whether your circumstances allow you to do so, so if you currently can’t make these savings don’t feel pressured to do so and at the end of the day it’s also a personal choice. But it can definitely open a lot of doors and get you access to amazing opportunities for your children so if you have the privilege it may be useful for you to make these savings but always talk to a professional before making any financial decisions.
The benefits of saving
This was pretty much covered by the “why do people save” section, but a few benefits include:
- You’ll have cash at hand so if any opportunities arise eg. to start your own business you could use your savings to take advantage of the opportunity, and its always good to have some money around because it could open doors for you.
- It protects you in case of an emergency or if an unfavourable event were to occur, eg, you could use it as your income source if you were made redundant or to cover a medical bill or repair your car if it broke down or anything really.
- It can be used to acquire assets and build your wealth, eg. you could use it to purchase property or other commodities, or shares, bonds and any other investment products, but make sure you speak to a financial/investment adviser before making any financial/investment decisions.
- You could also use it to treat yourself with some luxuries like a luxury holiday or anything you aspire to have or do.
Potential drawbacks of saving
- You won’t be able to spend as much now and may have to cut back on some luxuries but than delayed gratification can help you achieve your longer term goals faster according to experts, so the decision is yours to make.
- Interest may be quiet low which is actually the case now with current rates of 0.25% (January 2022). So any returns may get eaten away by inflation.
- There may be more profitable things you could’ve done with your money, things that may have returned better rates.
Ways to increase the level of your savings
- Start budgeting: to learn how read my blogs on budgeting:
- Pay off any debts you may have
- Try to increase your income if possible
- Cut back on some luxuries if you can
- Automate your savings eg. you could get certain apps or even bank accounts that save some money every time you spend, or you could even set up a direct debit sending money to your saving account each month
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