It can be difficult at times, knowing how much money we should be spending and how much we should be saving. It can be tempting to assume that we should always try to save as much as we can and we may feel pressure to save more. However, there might be better things to do with your money. It is worth understanding the advantages and disadvantages of saving so that you can decide.
- Have money to fall back on – it can be good feeling knowing that you have money to fall back on if you need it. You will be able to know that if you have an emergency and need money, that there will be money available for you to spend. This should help you to feel better about any potential financial problems that might come your way. If you get an unexpected bill or have to pay out for a repair or to replace something then you will have some money there to help you out.
- Earns interest– When you put money in a savings account it will earn some interest. This means that you will gain something from that money being in the account. This is better than having it at home or spending it when you will not make this money from it. Banks vary in the interest that they pay and it is worth comparing them to see which you like the look of the most.
- Feeling of security – it can feel more relaxing if you know that you have money behind you. Knowing that if you need it you have some funds can be really great. You will not need to worry so much about potential price rises or tax increases or about things you may need to buy in the future as you know that there is money there if you need it.
- Might prevent borrowing – if you have money available to spend then it could mean that you will be able to avoid borrowing money when you need it. This can save a lot of money as some forms of borrowing will cost a lot. Borrowing will also appear on your credit record and you may be wanting to keep it looking good for the future.
- Can save up for expensive things– if you want to buy some expensive items then by saving regularly you will be able to build up a pot of money that will pay for it. This can be very satisfying; knowing that you can save up for things like this. You will also be able to avoid borrowing to buy things like this, which may even be something that you will not be bale to do if your credit record is not good enough.
- Interest rates are low – the problem with savings these days is that the interest paid is not very high. This can put people off as they feel it is not worth bothering to keep money if they get so little in return. When interest rates were much higher, people were far more likely to want to save as they could get significant returns.
- Might be better to repay loans – loans can be expensive and if you have them, then it could be better to use spare money to repay them, rather than to save the money. If you compare the interest that you are being charged on the loan to the interest that you are being paid for your savings, you will find that it most cases the loan interest is higher. If this is the case then it can be better to repay the loan rather than save money.
- Might be tied up – if you want higher interest on your savings then you may have to tie the money up. This could be in a notice account where you have to wait a certain number of days or months to get the money or in a bond or similar where you have to lock your money up for a year or number of years to get a certain amount of interest. If you do this it means that you will not be able to get the money if you need it or if you do get it you will have to wait a while or take a cut in interest in order to do so.
As there are advantages and disadvantages to saving, you will have to decide whether you think that you should save more each month. If you do decide to, then you will need to think about where that money is going to come from. You will have to cut down your spending and this could be easier for some people than others. You will have to prioritise what you are buying so that you know that you can manage to cover the cost for all of your essentials before you put some into your savings account.