Everyone wants to save more money, but not everyone knows how to. Where to begin? In this article, I’ll review my top tips and advice on why you should save money. As a financial and frugal living expert who regularly saves over 50% of my income, I have tons of tips and tricks on how you can keep more money in the bank for your goals. Whether you’re looking to pay off debt, contribute more to a retirement account or simply just have a little extra left for a treat or two, saving. is important for everyone.
Read on to learn about why you should save money.
Top Reasons Why You Should Save Money
Money isn’t everything in life, but it sure is important. Let’s face it – when you have more of it, you have more freedom to do what you want. When you have extra cash in your checking, savings and investment accounts, you’ll feel a better sense of mental wellbeing. Below are the top ways that saving money helps you with becoming stable and independent.
Popular Reasons Why You Should Save Money
1. Achieving Financial Independence
Financial independence refers to the state in which you no longer have to rely on a salaried or waged income from an outside source to fund your lifestyle. Plainly stated: you don’t have to work anymore! Financially independent people will have enough passive income to fund their everyday expenses. For example, you may have a large amount of cash in a retirement account – say, $750,000. The account generates about 4% per year in compound interest, approximately $30,000. If your yearly expenses are around $30,000 per year, you’ll be able to rely on that interest to pay your bills.
Another way many become financially independent is making enough passive income off of other investments such as real estate income. Having enough cash to fund your investments and build that compound interest is a major reason why you should save money.
2. Building Emergency Funds
Saving for a rainy day is crucial – you never know what life may throw at you. Even if it’s something as simple as losing your favorite designer jacket you wear all the time (which happened to me last year), having extra funds on hand to cover unexpected expenses is essential. When you have some extra cash on hand, you won’t need to resort to putting your expenses on a line of credit or your credit card. While my jacket wasn’t as crucial as, say, a car, it was an item I wore every day and had to replace immediately. As I value purchasing higher-quality items that last longer, I was able to replace my old jacket with some extra cash I had on hand.
It’s generally a good idea to keep about 3-6 months’ worth of living expenses on hand and some additional cash to replace any major purchases you’ll immediately need should they suddenly break.
3. Protecting Against Inflation
Another reason why you should save money: it loses value over time. The key here is to actually put that money to use – saving it AND letting it grow. Saving money is great and all, but if you let it sit in your checking account, it will lose value over time due to inflation. Inflation is the phenomenon of your money losing value over time. For example, let’s say that a coffee costs $2.00 in 2020. In 2023, the cost has risen to $2.50. Your dollars have less value as you need to pay more to get the exact same item.
When you not only save money but invest it, you’ll accrue interest through compounding. Over time, you’ll protect against your initial $100 losing value. Check with a financial advisor to come up with a financial strategy that works for you and your goals.
4. Attaining Debt-Free Living
There’s no better feeling than living debt-free. While not all debt is bad (such as student loans), constantly owing money can really prevent you from achieving your goals. After I paid off my student debt, I had a lot more cash freed up and began investing for my long-term goals. When you have debt, you not only owe money, but you’ll owe interest on that money. The longer you owe money, the higher interest you’ll need to pay back on top of the initial amount you took out.
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Other Reasons Why You Should Save Money
1. Adapting to Life Changes
Extra money saved means you’ll be able to take on whatever life throws you. Whether you’re having a baby or need to help your parents move into a nursing home, extra money will mean you can pay for expenses in cash rather than relying on credit.
Furthermore, when you have money saved, you’ll have more flexibility in your career choices and taking risks. Because I made a regular habit out of saving money from every paycheck, I am able to travel regularly without dipping into my emergency savings account.
2. Fulfilling Personal Aspirations
Let’s face it: more money means flexibility. Is there a business you’ve always wanted to start or a sabbatical you’ve wanted to take, but haven’t had the financial means? Intentionally saving money means that you’ll have extra funds to put towards your dreams. When I started intentionally saving money, I was able to achieve my dream of visiting over 20 countries and moving abroad to Asia. This wouldn’t have been possible had I not intentionally set aside extra cash.
If you need motivation to save money, sit down for a couple of hours and write down a goal or two you want to achieve. Then, write down how much money you need to achieve that goal and how you’re going to get there.
3. Promoting a High Quality of Life
Everyone wants to live a comfortable life. When you have more cash on hand, you can make small upgrades to your life to make it a little better. From switching from always flying economy to flying business class on long-haul flights to investing in a high-quality leather jacket that makes you look and feel good, extra savings will help you live a better life.
4. Leaving a Financial Legacy for Loved Ones
If you’re still thinking “Why should I save money?” After all, you only have one life to live and need to enjoy it. Whether you want to think about it not, everyone will get older and pass away. If you have dependents, you’ll probably want to leave behind some assets for them. When you intentionally save and invest money and are able to withdraw no less than the amount of interest accrued on your retirement nest egg, you’ll leave behind money for your family. Additionally, you’ll have extra money to donate to worthy causes in your memory. Saving money not only benefits you, but it benefits you and the greater community.
How to Start Saving Money
Why is it so hard to save money? Simple: you don’t have a plan! Fear not: below is my essential guide on how to start saving money. These steps have helped me save thousands of dollars towards my goals. It may be difficult to save money for a variety of reasons, but if you have a plan and stick with it, you’ll be able to start saving.
Set Financial Goals
1. Know How Much Money You Make Per Month
Before you start saving money, you need to know exactly how much money you make. If your income fluctuates like me, take the average of your earnings from the last 3 months. For a more accurate estimate, take your average earnings from the last 6 months.
2. Categorize Spending by Essential and Non-Essential Purchases
Next, determine how much you spend on essentials such as rent, groceries and utility bills and non-essentials such as takeout and movie nights out.
3. Set a Spending Limit for Non-Essentials
After you’ve put your spending into two different categories, set a limit on each of your non-essential spending categories. Use a budgeting app such as Mint or YNAB to track your spending limits.
4. Reduce Spending on Essentials
While you can’t skip out on the rent payment, there are ways to reduce spending on essentials, including household costs, bills and other non-negotiable costs. Consider renting out a room or doing long-term housesitting at another residence while you rent out your place. Call up your internet provider and ask for a loyalty discount. Become more intentional with doing frugal grocery shopping and cooking by meal planning, comparing prices at supermarkets and buying in bulk. Being frugal takes time and effort, but it’s well worth it!
Utilizing Designated Savings Accounts
Creating designated savings accounts for goals has helped me save money a lot easier. When I can visually see how much money I have – and still need to save – for each saving category, I keep motivated to achieve my goals. I personally have three savings accounts: one for emergencies, one for vacations and one for other unexpected purchases. Set up a system that works best for you.
Automation of Savings and Bill Payments
Save time by setting up your payment to automatically be debited from your checking account or charged to your credit card. Automating bill payments has saved me hours of time on manually transferring funds from my checking account to the billing company.
Supplementing Income with Side Hustles
In this day and age, there are many different ways to make extra money. Anything from tutoring to selling digital prints online or participating in paid online market research studies are flexible and fun ways to make some extra cash.
Incorporating No-Spend Day
Kickstart good saving habits by choosing a designated day when you’ll only spend money on stuff you need. Take your savings challenge a step further by forgoing non-essential purchases for a month or entire year. If that’s a bit much for you, try a low-spend month or low-spend year where you reduce spending by a certain percentage.
A Final Word on Why You Should Save Money
There are so many reasons why you should save money. From freeing up cash so you can start a business, travel more or save for retirement, saving money is for everyone. Start small by cutting down on non-essential spending. If you’re feeling up to it, try an extreme frugal living challenge to really kickstart savings. Be sure to reward yourself every once in a while for keeping on track with saving!
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Janita is a frugal living expert and owner of Frugal Fun Finance. With over five years of personal experience finding and trying out the best ways to make and save more money, she's eager to share her knowledge. Janita's strategies have helped her save thousands of dollars for funding investments and traveling to over 20 countries.
Janita completed training in personal finance at The University of Western Ontario and McGill University, two prestigious Canadian universities. Her expertise has been shared on GoBankingRates, Yahoo Finance, and NASDAQ.com.
