There are a variety of reasons to begin or continue saving money. Different people save for different reasons, but in general, havings savings will benefit you in the future, whether you’re avoiding hardship or going after the things you want. Saving money may also be easier if you have a clear goal or purpose for it. Here are several reasons you should save money now. That emergency might be an unexpected car repair, expensive medical bills, or a sudden job loss. If you were to lose your job, you’d be thankful you socked away a good amount of money into your emergency fund to tide you over until you found a new job. Ideally, your emergency fund should contain enough money to cover three to six months of expenses. The Bureau of Labor and Statistics estimates the average household spending in 2020 was $61,334, or $5,111 per month. Using that as an example, an emergency fund that covers six months’ worth of expenses should hold about $30,000. That’s just an example. Save as much as you can to get started, and over time your fund will grow. If you are working to get out of debt, save what you can until you bring your emergency fund up to even just one month’s worth of income. If you are single or living on just one income, you may want to consider a larger emergency fund, since you might not have a buffer if you lose your job. Saving for retirement often takes place within special retirement accounts, such as a 401(k). Money invested in these special accounts has the potential to appreciate in value, earning interest. When that interest is compounded, it grows even faster. For example, if you opened an account with $1, deposited $100 every month for 10 years, and earned 6.5% interest compounded annually, you’d have $16,195.18 after 10 years. Keep it up for another 10 years—20 in total—and you’ll more than double your money to $46,593.89. If you started investing at age 25, with 30 years of saving $100 each month at a 6.5% rate of return, you’d have $103,656.45 (including compounded interest) by the age of 55. Such a rate of return is not guaranteed, and you do risk losing your money by investing. However, historically the gains have all been positive, and with enough time in the market, even dips eventually recover. If you don’t think you can save enough to put 20% down, you can still buy a home. Certain government-backed programs such as the Department of Veteran Affairs (VA), Federal Housing Authority (FHA), and U.S. Department of Agriculture (USDA) loans accept lower down payments, and sometimes even no down payment at all. You can determine how much to save toward a home each month based on your circumstances and other savings goals. However, as interest rates rise, credit card rates go up, too. Therefore, it’s even more important that you have cash in savings in case of an emergency, so you don’t have to rely on expensive borrowing to cover your bills. You might save up for a new car, paying for it all at once instead of taking out a car loan. Then you’ll avoid having a car payment. You might even be able to negotiate a lower price by paying in full on the spot. Or perhaps you’re saving for a once-in-a-lifetime vacation or trip abroad. Having an exciting goal like this can make it easier to motivate yourself to put money away. These extra savings can help prevent you from needing to dip into your emergency fund. After all, paying taxes is not an emergency—you know they’re coming, and you can prepare. If you’re saving money for your children’s education, consider using a 529 plan. That is an attractive savings choice, because the money grows tax-free. Depending on where you live and your particular situation, there may be other tax benefits, too.
