Savings is one of the most crucial components of financial security. With a little planning, individuals can avoid indulging in debt. Moreover, they will save themselves from the unending vicious cycle of ‘charges.’ Most of the times, financial planning is disturbed from higher interest charges.
Savings results in freedom of buying a dream product in the future. It can be anything from holidays, furniture, a cream vacation, a car or a first home. So, don’t wait for month end to see what is left for savings. Instead put a fixed percentage, say 10%, apart every month as savings, and then use left over earnings to meet monthly expenses.
People often confuse savings with emergency funds. Both the terms are different and their purpose in financial planning is different. In case of savings, the objective is clear but in case of emergency pool, people don’t know when and where emergency funds will be utilized.
An emergency fund comes in use when people face unexpected problems in their life. It can be anything from an accident, or a loss of job. An emergency fund should be able to cover at least three months of living expenses.
People should save and invest for their retirement. They should start it an early age so that they don’t have to contribute a large part from their earnings in retirement corpus. It is crucial component of long-term financial security. Here, the key is not how much funds you save but key is people spend less than what they earn.