Saving money can have a multitude of positive effects on an individual’s overall financial security as well as quality of life. Having a savings account or other method of savings has the obvious benefit of financial security, but there are also other benefits that may not be so straightforward. By working to cut corners and save money, people may become healthier because they cook more meals at home, they may get beneficial exercise because they walk or bike instead of driving, and they may have time for additional hobbies and activities because they spend less money on entertainment.
Knowing Where the Money Goes
Creating a budget is a worthwhile exercise for virtually everyone. By considering expenses and comparing them against income, it’s possible to make informed decisions about where and how money is spent. A working budget also provides the opportunity to allocate a specific amount of money each month to savings and investments. This mindful spending is an ideal way to make careful decisions about how much money is spent for discretionary expenses such as entertainment. With a planned budget, it’s also possible to cut corners when necessary to pare down spending.
Cutting Down on Anxiety
Living from paycheck to paycheck is an unfortunate reality for many people, but this is not ideal. Having money set aside for emergencies can be an effective way to alleviate overall anxiety levels. Situations can arise without warning that require significant sums of money to resolve, such as car repairs, appliance malfunctions, and health issues. Having money set aside to use for these unexpected expenses can help people feel more secure and prepared for any eventuality. A good rule of thumb is to try to save between three and six months of expenses to have on hand for an emergency. This savings might not accrue overnight, but this is a reasonable goal to work toward.
Protecting Your Credit Score
Having money saved may not have a direct impact on an individual’s credit score, but having this money set aside for emergency expenses can be an effective way to protect your future credit score. Being able to use savings instead of going into debt with a loan or with purchases on a credit card effectively protects your credit score because financing won’t be necessary. The savings also eliminates the risk of potential harm to your credit score because of unpaid bills.
Planning for the Future
Investment opportunities may come along that require funding. Instead of having to go into debt to take advantage of these opportunities, money in savings can fund the investment instead. Savings can provide individuals with important freedom to seize opportunities as they arise, such as buying a home, changing careers, or investing in a new business or other type of venture.
Anyone with goals such as owning a home or a nice car or moving to a specific location likely realizes that these goals won’t just happen without a plan. A detailed budget can include a plan to save a specific amount of money each month to reach a goal. Seeing monthly progress toward attaining a goal can also be very motivating.