Save money—Diversify your portfolio—Take the right investment decisions—Be future-ready financially. These are some of the most common financial pieces of advice you may have received. It is also true that we should live in the present. In this dilemma, has a question ever crossed your mind – Why should you save money for the future?
There are two ways to approach this question – philosophical and practical. While both are important, I would delve into the latter as that is where my expertise lies. A simple answer can be ‘Yes, save money because that makes sense; you cannot spend everything you earn.’ But this advice can be too straightforward and unfair to the depth of the subject in question.
Yes, we all should save money and not depend on luck or what the future holds for us. There are more than just a few reasons why one should save for the future. Let us discuss the most important ones, and needless to say, there can be plenty more reasons.
Savings will help you deal with an emergency
Create an emergency corpus that will serve you during an unfortunate event like a temporary job loss, medical emergency, or other need. Fixed costs like food, loan instalments, kids school fees do not change with a change in financial condition. This emergency fund helps you meet immediate financial requirements.
As a rule of thumb, living expenses of 12-18 months should be the size of your emergency fund.
Do read more about emergency corpus in my article on ‘Thumb rules of financial planning’.
Get financially secure early to explore life
Depending on your needs and financial background, getting financially secure sooner can be one target. There are many reasons to pursue a state of early financial freedom. These vary from wanting to travel and explore the world, pursue your hobby, or do something even better.
To achieve this target, one must save adequately and invest prudently. Whether you choose to continue to work or not, savings must be substantial enough to support financial requirements over the rest of your life.
Pursue an alternative career
Amongst those who are not already entrepreneurs, many carry a desire to work for themselves. To leave a job and explore the unchartered territory of owning a business is challenging. Especially if the financial condition is not secure and there is not enough wealth to support that venture. For those working for themselves, there could be a wish to explore other business areas.
These decisions to change gear and become an entrepreneur, start a new business segment, or a new business altogether depend on your financial strength. If there is enough savings and wealth, taking a bold decision is possible.
Philanthropy – give back to society
Most often, respect in society is what makes you who you are. To possess sufficient financial resources and to be in a position to contribute to the community is a privilege. There are several ways to make a social contribution, and one crucial way is to donate generously. There are several instances where one presents a large sum of money for philanthropical causes. The scale is not essential, but having funds to contribute to a social cause will earn you societal respect and internal satisfaction.
In some cases, the situation is different. There is the availability of funds, but there is not enough workforce to take up responsibility. The expectation is that people will donate time and help serve the cause. In this case, too, financial health is essential to spare time and spend on a noble cause.
Plan for significant events in life
Several events – significant or trivial – happen in our lives, and the demand for money is constant. One can tide over these expenses if planned well and in advance.
Some of the events, recurring or one-time that can notably affect your financial situation are:
- Purchase of a house
- Buying (or upgrading) a car
- Education cost – school fees or for higher studies
- Medical expenses (not covered under insurance)
Timely planning and saving for these events will help you considerably and avoid any crisis.
Do read about how to make an investment strategy and plan for these significant events of life. Link to the article on ‘Making an investment plan’.
Create a legacy for the next generation
Can you imagine how you will feel when you leave a few crores for your children?
Now, imagine how you will feel if your children have to build everything on their own? Buy a house or a car in instalments. Compromise their vacations to accommodate for living expenses.
Which one is better? Of course, the first one is where you leave a legacy for your children, and they build on the wealth.
Savings is an outcome of judiciously planning your expenses based on your income. To save is not a natural phenomenon; it is a process. Saving money will help you leave a legacy and wealth for future generations.
There is a date when you will stop earning and retire
There is a limit up to when you can continue to earn. Salaried people know the date when they will receive their last paycheque. Self-employed people decide their time, but there will be a date when they will stop earning.
Outflows, on the other hand, are perennial. Unsurprisingly, expenses have a longer life and no retirement date.
One must smartly plan investments and save enough to not run out of money during the retirement phase. That could be disastrous as income avenues could be scarce at that juncture of life.
Do read my article on ‘Retirement Planning’ here.
To avoid the debt trap
Life is ambiguous, and one may witness a situation of distress, leading to a money drain. What will help during such problems is to have enough savings. If funds are inadequate, people resort to obtaining a personal loan or swipe their credit card beyond paying capacity.
The trap always begins with a small debt. But if not managed well, people get entangled in a severe debt trap even before realizing it’s too late. To avoid such a situation in life, one must save enough for future uncertainties.
And if all these reasons are not enough, here is the final attempt to convince you to save for the future.
Save to feel good about life
Money provides a sense of security and well being. Quantum of wealth is undoubtedly one of the metrics that significantly affects the peace of mind. To have the financial capacity to overcome any situation gives strength and positivity even if it does not lower the adversity. Financial assets are a measure of progress in work life. You will like to see your savings grow to feel compensated for the hard work you do.
Once the savings are adequate and income continues to grow, your family can lead a better quality of life. Kids can get admission to good schools; the family can go for vacations, family functions get more colourful, etc.
Do read about ‘How to save Rs 1 crore in 10 years‘ here.
So, start saving and investing today for a better tomorrow.
The author is a senior finance professional with over fifteen years of work experience in corporate finance and has an affinity for personal finance and investment management. Please leave your comment or share thoughts on this article via email at firstname.lastname@example.org. For more articles, please visit the website www.decodefinance.in.
The author has used his knowledge, experience, and understanding of the subject to write this article. Any views, opinions, and thoughts mentioned in the article belong solely to the author and not necessarily to the author’s employer (past or current), organization, committee, or other group or individual.
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