12.4 Saving
Savings represent the portion of your income you set aside for future use rather than spending it immediately to cover regular expenses such as accommodation, food, or transportation. It may seem challenging when funds are tight, but it is always possible for everyone, and even small amounts can grow over time.
Income refers to any money received from all sources, including:
- Full-time or part-time jobs
- Side hustles or freelance work
- Scholarships, grants, or government benefits
- Gifts and inheritances
- Investment returns (e.g., dividends, interest)
Why Save Money?
Saving money creates a vital safety net that protects you from financial shocks and provides funds for future goals. Consider the following:
Emergency Expenses
- Unexpected bills (like a laptop repair) or an unexpected drop in income won’t derail your finances.
Short-Term Goals
- Vacation
- Holiday gifts
- Special events
Long-Term Goals
- Down payments on a house
- New car
- Retirement
- Education funds for children
How Much Should One Save?
There is no clear-cut answer to this question. It depends on one’s goals and personal circumstances. Everyone has their own opinion. However, one may consider the following popular guidelines:
50-30-20 Rule
-
- 50% of income to needs (rent, groceries, utilities)
- 30% of income to wants (entertainment, dining out)
- 20% of income to savings or debt repayment
The “Wealthy Barber” Approach (10% Rule)
The Wealthy Barber is a classic personal finance book that emphasizes the “pay yourself first” approach to saving (Chilton, 1989). The main takeaway is that saving consistently from each paycheck, even small amounts, can lead to significant long-term financial stability. The author suggests setting aside 10% of every paycheck for savings or investments.
Practical Ways to Save Money
- Automate Your Savings: Have a portion of your paycheck directly deposited into a savings account. Pay yourself first!
- Cut Unnecessary Subscriptions: If you’re not using it, cancel it
- Buy Groceries in Bulk or On Sale: Plan meals to avoid food waste and minimize eating out
- Use a Money-Saving App or Rewards Program: Collecting points can lead to discounts or cashback
- Beware of Hidden or Excessive Fees: Monitor your bank and credit card statements regularly to catch surprise charges and switch providers if fees are too high.
- File Your Annual Income Tax Return: You may be eligible for tax credits, benefits, or a refund. Don’t leave money on the table.
