Monthly Archives: June 2015

Is saving really necessary?

Most of us are familiar with savings accounts offered by banks. As the name suggests, it is for us to save a part of money that we earn regularly. We put aside a certain amount for later use. It can be some specific use or for an emergency. A few transfer this to a term deposit when a significant amount is built up so a higher interest can be earned.

So, is saving really necessary?

I happen to see friends, who (at least when they were new to earning) used to spend up all that they earned. It’s that ‘honeymoon’ period with working for the first time and you get a handful (or account-full) of cash at the end of the month. In some cases, half the salary would vanish within the first week, after buying ‘stuff’. Credit cards too come into action later which makes things a bit more complicated. But the bottom-line is that the individual is enjoying by fulfilling all their needs for which they had to wait for quite some time. Is there anything wrong in that? No.

But this should not go on forever. One must not work under the assumption that the flow of income will last forever and everything will go according to plan. It won’t. Things change when moving out of parents house, getting married, dismissed from work, etc., There will be a sudden need for a higher income which one cannot find in a rush.

Savings helps here (unless you are loaded already or due an inheritance). Best way to save is to set aside a part of your income instead of the balance after spending.

The balancing act of spending vs. saving

While most argue that saving will sacrifice on what you spend now on improved lifestyle, fulfilling needs (not wants) and how short and unpredictable life is, a short-term mindset like this may make you pay in the long run. On the contrary, returns on investments from the savings will let you do do these gradually a few years down the line AND also have a savings fund. It’s important to find the right balance for your life.

The art is not in making money, but in keeping it. – Proverb

Life does not always come with constant recurrent expenses every month. There will be large expenses, both expected and unexpected that will arise from time to time. This is when most turn to debt. Thereafter pay down the debt, which again will shrink your purchasing power. It is never a good idea to take out a loan if it not used for something that will pay you back (unless it’s an emergency). If it is an urgent medical need, a loan may not be obtained in quick time unless expensive. As for having a wedding, taking a loan to spend for it, does not make sense at all. The list goes on, and will make you realize why savings is necessary.

Then we come to the point on what we should do with our savings. Well that’s a topic for another time.

So think of how savings matters to you (if it does at all), and how to strike a balance between saving and spending.