Savings, in my opinion, is a bit overrated. It could easily be turned into some form of addiction, an addiction to see the numbers in your bank account rising with every passing day, with no other purpose to serve. As someone Who is fond of saving, this might sound a bit controversial, But all my life, I have had a little voice going off in my head from time to time, telling me to restrict my expenditure and save as much as I can.
I guess it just is not in me to spend recklessly and go on a shopping spree, even though I would love to. My mind tends to rationalize everything. Especially the value for money. If I see an outfit that I like, odds are I would not be purchasing the outfit unless it`s in the price range I have in my head and not the price quoted. This is probably one of the most important reasons why I have been able to save big in a shorter period of time than others. Nevertheless, many people and friends I know find themselves in debt more often due to their spending habits and Sharing my thoughts might help them organize their finances better.
Why Do People Save?
Humans want to see the future, and whilst they cannot foresee it, they try to mitigate the outcome and gain some control over their future by saving. As per renowned economists, Human beings tend to save for three purposes.
For Transactional purposes: People tend to save for transactional purposes to meet their daily demands in the foreseeable future and to meet the requirements of their upcoming big expenditures, such as weddings and or the cost of their kids` college education.
For Speculatory purposes: People tend to save for precautionary motives. These precautionary motives include medical and health emergencies. From family to your own self`s well-being, people tend to save.
For Investment Purposes: Due to their confidence in the economy and to generate wealth, people tend to save more than they spend. The higher yield on the deposited amount inclines people to save more than they usually do as the fear of missing out takes over.
You can Truly save and change the outlook of your life by just understanding the basics of savings. Moreover, it becomes easier to save with a classification of each type due to their reasons.
I call these Three Kinds Of Savings and let me shed some thoughts on How each Can Help you control your spending habits while building wealth in the long term.
The Do Not Touch Emergency Fund: Speculatory purposes
This is going to be your emergency fund and probably the most important kind of savings fund you would want to establish. Since life is very unpredictable, there will be instances where unexpected costs will arise only to come out of your long-term savings. Eventually hurting your future wealth and lifestyle. These unexpected expenditures will surely put a dent in your long-term goals. In which instances should you be using these funds? Including loss of job and medical emergencies. Anything except for these emergencies is strictly off limits for this Fund.
However, if you do not have this Fund established, you will most probably be utilizing your credit for these transactions, consequently increasing your debt. Make sure you have enough savings in your emergency fund that it can easily get you through for 3-6 months. Putting this amount in a savings account would be a smart call to encounter any unprecedented inflation.
For Long term expenses:Transactional purposes
This Fund will be your most sought-after resort of money and can be used to purchase the items on the Christmas list and for your long-term milestones such as changing cars and getting home. Since these are the types of expenses you would not encounter daily. You can see them coming up ahead in the near future. Something that would be a great addition to your wealth and the number of assets in your name. Research the market a bit and estimate the cost of your future purchases to purchase these assets eventually. These purchases are hefty and do not always happen overnight. However, they can become achievable milestones if broken down into monthly installments.
Building Your Wealth: Investment Purposes
Working after your retirement does not always sound wise, especially when you have the amount of energy. You will need help, and even if you do not earn after or in your 60`s is more complicated than earning in your adolescence. What to do? Establishing a retirement fund or setting up a 401k can set you up for the shady days after retirement. However, instead of putting this amount in traditional savings amounts, it is better to invest it in a high-interest-yielding compounding account or mutual fund to get the most benefit from it without exposing yourself to serious risk.
Creating Balance is the key to happiness:
The savings you put into all these three accounts is highly subjective and varies person to person. However, it creates a streamlined guide to control your spending habits and take care of unprecedented expenses as well as the ones you can foresee. The reason why the amount you put in is highly subjective is because of the income disparity, which increases day by day. Nevertheless, if you can create a balance between your spending habits and the money you save, it will undoubtedly result in a life of fewer problems and worries so that you can savour every moment.
