Why Should I Save?

save with coins inside

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With 70 percent of Americans living paycheck-to-paycheck, most families are simply surviving from one crisis to the next. Here are a few reasons why saving is essential to your financial success.






 

Affording Emergencies.

Without an emergency fund, what happens when your car needs repairs or the refrigerator dies? You end up robbing money set aside for bills, food, gas and other essentials to pay the expense. If you were laid off today, how long would you be able to pay your bills? Budgeting is how we deal with the expenses we can plan for. Savings is how we deal with the expenses we can’t predict. Even if it’s only a small amount, setting money aside for an emergency fund gives you peace of mind about dealing with unexpected expenses. Check out this Emergency Savings Calculator to help you decide if you’re saving enough.

Buying Big-Ticket Items.

If you put an expensive item on your credit card, you’ll owe interest until the item is paid off. If you save up for those big-ticket items ahead of time, you’ll own the item outright and won’t have to pay extra for it, in the form of interest.

Compounding Counts.

Compound interest is interest earned not only on the principal, but also on interest already earned. In other words, it’s money earned on money earned! Let’s say you invest $100 per month at a fixed 8 percent interest rate. By the end of the first year, you will have earned $96 in interest.

Not impressed? Check out how much money you would have in 30 years!

Compound Interest Chart
Year Amount Invested Interest Earned Total
1 $1,200 $96 $1,296
5 $6,000 $1,603.11 $7,603.11
10 $12,000 $6,774.58 $18,774.58
15 $18,000 $17,189.14 $35,189.14
20 $24,000 $35,307.51 $59,307.51
25 $30,000 $64,745.30 $94,745.30
30 $36,000 $110,815.04 $146,815.04

Because of compounding interest, the earlier you start saving, the more money you can make. Notice that by year 15, the interest earned is nearly double the amount invested!

Want to know more about the magic of compounding interest? Check out this compound interest calculator to learn more.

Life’s Milestones.

Some of life’s biggest achievements are also the most expensive. Paying for a child’s college education, caring for an elderly parent and preparing for your own retirement are all events that require planning. Saving up for these major life events will allow you to make the most out of your compounding interest and keep your finances stable and secure.

Building Wealth.

Saving is the key to building assets and wealth beyond your monthly income. Once you’ve saved for an emergency fund and built a decent nest-egg, you’ll want to start thinking about ways to earn more interest on your savings. More interest means more risk, but over a long period of time, this can mean big rewards. Search our clearinghouse for resources about investing.








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