Saving is an important part of our life which, unfortunately is being neglected today by most of the people.
In this article, I am going to explain the current saving scenario in the US and the world and will help you comprehend, why saving is important for you.
The current world is designed in such a way that it encourages spending rather than saving because when you spend, organizations and governments earn huge profits.
There is no harm in spending by the way, but the problem is nobody talks about saving money, which results in people indulging in reckless spending due to lack of both knowledge and motivation to save.
But not saving money can lead to catastrophic results in the future.
The consumption driven model of economy, which is prevalent in most of the western capitalist world, inherently goes through cycles of boom and bust.
This is how the system is designed.In every decade or so, an economic correction occurs in the US economy.
Don’t believe me?
Well let’s have a look at US GDP data from 1965 till 2015.
If you have a good habit of saving and investing, then the above graph need not scare you.You are cool.
But if you just spend recklessly citing low-interest rates on deposits, better think again.
American economy like most of the other currency driven economies, function on debt.
You heard me right, The economy is financed by debt, and therefore the boom and bust cycles are inevitable.
But that does not mean that you have to suffer during the ‘bad days’!
So get ready people, cause I am going to present my top#5 reasons to start saving before it’s too late!
1)Being immune to economic cycles.
When you save a portion of your money, you get protection against the recession and depression that are an intrinsic part of our monetary system.
Savings provide you with much-needed immunity in those ‘pressing’ times and gives you a buffer to think and make rational choices for your future.
You need not start saving a big chunk of your money, small portions of it would suffice.
The key here is that you save regularly with discipline.
If you read any of my articles, you will realize the emphasis I put of financial discipline.
Asian countries like China are currently way ahead in saving rate than the US.
Checkout this statistic from world bank.
It shows the gross domestic saving rate (as %GDP)
Friends, see the huge difference in the saving rates of the two countries.
Low saving rates makes the economy and individual vulnerable.
Low saving rate is manageable for USA as a whole, but at an individual level, it is not good for you.So you better start saving money from today!
Again I want to reiterate, the amount is not important.
Just start saving!
2) To maintain the healthy balance
You must save to maintain a healthy balance between your earning and consumption.
Let me give you an example here, what would be the wiser thing to do, spending the entire monthly salary on an iPhone or using the earned money as per a budget prepared during the beginning of the month?
Well, I bet most of you will choose the second option, you can buy iPhone on installments.There is absolutely no need to burn the whole cash on it!
Friends, I have talked about strategizing purchases in on of my articles.You can check it out by clicking here
Let me show you a very interesting correlation between our saving habit and our GDP growth.
Check this chart over here.This chart shows personal saving rate change over the years in USA.
This is different from the chart above, as this does not include corporate and government savings into account.
If you guys carefully look, you will see that whenever the economy is doing bad, personal saving rate is increasing.
Well this is a reactive behavior, not proactive one!
What I want you to do is inculcate the habit of saving proactively.
3) To Retire peacefully
Retirement is an important stage for which we all must plan diligently.Personal savings is an important determinant of your retired life.
Trust me on this, if you do not have enough savings, retirement can be painful!
Don’t let that happen to you.
Let me show you how alarming the situation is.
This is the chart of retirement account balance by age group as published by fed.
This graph presents a grim picture.Most of the people who earn around the median income actually have very little retirement saving.
On the other hand the top earners have sufficient funds to enjoy a great retirement!
Honestly assess as to which group you belong, and start saving so that you retire as per your wishes.
you can check out the full report here.
4) To face emergencies like a warrior!
Life is not always going to go as per your plan.There will be good days and some really bad ones.
Good savings will help you sail through the bad times and help you recover faster.
Sufficient savings act like an extra life in video game!
You got my point.You will be psychologically fit to take on the bad days with sufficient funds in your kitty.
So think like a good gamer and save money whenever and wherever possible.
If you are convinced by know, you can check my article on saving tonne of money over a lifetime by clicking here.
Let’s move on to my last tip.
5) To build wealth
Saving is the cornerstone of building wealth.
How can you ever accumulate wealth without saving?
The net worth of an individual is greatly influenced by the amount of liquid savings
Net worth is the difference between your assets and liabilities.
Your personal assets like real estate though are your assets, do not qualify for net worth as they don’t affect your credit score.
You can use your personal saving for down payment, thereby increasing your credit score.
Amazing, isn’t it?
That’s it guys, hope you liked this article.
Please share it if you did, I will appreciate the love.