With credit so easy to get, why would anyone want to save money and buy with cash? If you want something, you pull out the plastic and then pay it back with payments over who knows how long paying outrageous interest on that purchase which can substantially raise the cost of the item by the time you have paid for it. If you can afford the monthly payments, everyone does that; what's the big deal? The unfortunate thing is this sort of rationalization is making sense to too many people these days much to their detriment.
Here are few reasons why you should save:
Become Financially Independent.
Financial independence isn’t the same as being rich, but it allows you not to have to depend on a certain pay cheque every two weeks to keep your head above water. This financial comfort can make you feel rich beyond your wildest dreams! Having savings that you can rely on is what it takes to become “rich,” no matter how you define it.
Save 50% on Everything You Buy + 24% on Groceries
If you normally charge all of your purchases on your credit card, and then don’t pay off those charges in full every month, the additional interest charges on the unpaid balance can raise the cost of those products by at least 50%. If you are relying on your credit cards to finance your lifestyle you are making a huge mistake and should break this expensive habit of using “convenient credit”. The better option is paying cash for planned purchases.
With savings (defined as cash in the bank), you can buy things when they are on sale and take the time to make better spending choices. People with savings can also stockpile groceries when they are on sale (items that are nonperishable or which can be frozen).
Buy a Home
The bank won’t lend you money to buy a house unless you have a down payment, and you are not allowed to borrow a down payment. You must have this money saved up or have someone give it to you—and not lend it to you. Your down payment needs to be at least 5% of the purchase price of the home, and then the bank will consider lending you the other 95%. There are all sorts of other costs and fees that you need to pay when you buy a home so you will need an additional 5% just for those costs. Savings is what will open the door for you to home ownership.
Buy a Car, or Not
When you want, or need to buy a new car, you will need to have a down payment to get a car loan at a reasonable interest rate. You could, of course, borrow the money from your credit card, but at 20% or more, how is that getting you ahead? Zero percent financing is reserved for great customers, so a car loan is bound to cost you something—and it could be a lot. The best thing you can do is save up as large a down payment as you can afford and then consider your options. Maybe buying a good quality used car rather than a new one will be what it takes to get you the vehicle you need. Perhaps a better option depending on your needs or lifestyle is to use car sharing services if you live and work in an urban center or take public transit.
Get Out of Debt
If you ever want to get out of debt, you must have some money saved. Sounds ironic, doesn't it? However, the credit cards are never going to get paid off if you keep using them for every emergency that comes along. Even if you are an awesome planner, stats show that half of us experience at least one totally unexpected expense each year (and half of those will be unexpected car trouble).
So before you start aggressively paying off your credit cards, you should save up $500 to $1,000 as a reserve fund. Then when unexpected things come up, you can pay them out of your reserve fund rather than put them on your credit cards. Maintaining a reserve fund will also help you to notice if your spending is getting out of hand.
Unforeseen Expenses
What will you do if your car needs some major repairs? Do you have $500 to $3,000 on hand? What if your house needs some repairs, or it is discovered that you are living in a building that leaks? You can’t always count on the bank to lend you money for these things. It is much better to anticipate a worst-case scenario and have some money saved.
Emergencies
As much as we hope that emergencies won’t happen, we all know that they do. A family member can develop a health issue, you might need to make an emergency trip, you may have a car accident or breakdown, severe weather could flood your basement or crack your pipes, or you may have to fly to a loved one’s funeral. Any of these emergencies can be expensive, and we all know that we will likely encounter some sort of emergency from time to time. So why not be prepared rather than potentially become another victim of an emergency.
You Could Lose Your Job or Get Hurt
You could suddenly lose your job, your business could dry up, you might get injured—either physically or psychologically or become too sick to work. Any of these things can happen to you. Employment Insurance (EI) doesn’t kick in until you have been unemployed for 6 weeks. Do you have enough savings to tie you over or will you be living on credit? Living on credit during a time like this can quickly make a bad situation worse. Minimum payments become higher and higher until they are unaffordable and credit limits no longer budge. Then when you finally do get some income, what used to be enough doesn't get you by because you have all these new debt payments to make each month. So now you need more income than before because you'll need to pay down these debts and eventually work to get them paid off.
There is a little-known truth that happiness can come from being organized. Being organized isn’t going to make you happy all by itself, but it can sure help. There’s so much in your future that you don’t have control over, so putting aside some money to spend when you need it is organizing and taking control of your future and financial affairs. You have nothing to lose by saving - and only a happier future to gain.
Free Family Budget Planner Sheet
Families who are serious about their financial future will find value in creating a family budget planner. Whether to save for buying a car or family house or putting kids through college, a family budget planner template will help create your yearly budget for your family to accomplish your goals. This family budget planner template breaks down all family income and expenses on a monthly basis, and provides a roll-up of year to date totals for each category. Download Here
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