The importance of saving, and how to do it properly
As children, we learn the importance of many things. We learn the importance of playing nicely, the importance of personal safety, and how important it is to obey the law. What we don’t get told is how to save money and build long term wealth for ourselves. Saving money is the foundation of personal wealth, and doing so can lead to a better life. So, how does one start to save money? How can you make your money work for you?
Mindset
Budget. Yes, what a sexy word that is. To some people, saving money has connotations of being “tight,” but to those people, I say this: see you in ten years, and we will see who’s “tight” for money. You must understand that saving is a long-term strategy that has nothing to do with being stingy and everything to do with being rich in the future.
Saving money requires you to have a surplus of money; to do this, you must be bringing in more than you spend. While many people believe they are simply not making enough, its usually the case that they are spending too much. Know yourself, know your limits, and set up a budget to get the full picture on your spending.
Once you have a full picture of your finances, you can identify areas of weakness. Unnecessary purchases should be cut completely. Pay close attention to your debts (if any) primarily credit card debts as you could be paying a very high rate of interest on repayments. If you have a large amount of high-interest debt, you may want to consider consolidating this debt with a lower interest loan.
Make your money work
Once you have your cash flow in order you will start to see money start to accumulate. You could let your savings sit in a bank account and gain measly amounts of interest, or you could make it grow in a term deposit. Compare term deposit rates, and you will see this product offers a better return than your average savings account. Term deposits are an excellent product for those who have saved some money and want it tucked away safely where they can’t touch it.
The best term deposit rates will offer a nice little return on your investment, but there are other ways to make your money work for you. As mentioned earlier, a savings account, especially an online-only account, can offer comparable interest rates without locking your money into a fixed term. Of course, you can invest in stocks and shares, but the best term deposit rates offer a decent return with minimal risk and no maintenance.
Perks
Saving money is a lifelong habit, and one that is difficult to cultivate. While planning and saving have their apparent benefits, there are other ways in which your saving habits can benefit you. When applying for a line of credit for say, a home loan, your personal situation is scrutinised and your ability to repay is weighed up against any liabilities you might have.
Someone with a demonstrated ability to save money has an enormous advantage over someone who lives from week to week. Savings shows responsibility, stability, and a mind for managing money. Not only are you more likely to be approved for a loan, but your risk to the lender will be much lower. The ‘safer’ you are deemed to be by your lender, the lower your rate of repayment will be, saving you even more money!
Saving money usually conjures images of eating two-minute noodles and placing unrealistic limitations on oneself. Saving money shouldn’t be a sprint but a long and steady walk towards future wealth. With the right mindset and proper planning, anyone can begin to save for a better future.
