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ECONOMY| 01.09.2023

The importance of saving for the future:

practical tips on how to do it

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Learning to save is critical. It helps us establish an emergency fund, pay off debts, invest, and plan for the medium and long-term.

However, why is it often difficult to save? Realizing the significance of saving generally inspires us to be more disciplined with our finances.

Seven reasons why you should save

Saving is much easier when we know why we do it. That’s why we will give you seven reasons that can motivate you: 

1. Create an emergency fund: saving between three and six months of our fixed expenses will allow us to have that money available in case of emergencies. For example, losing our job, falling ill or having to make costly repairs to our home, among other unexpected expenses. 

2. Pay off our debts: saving a percentage of our income also allows us to pay off our debts. It’s wise to prioritize payments with the highest interest rate. By adopting this approach, you will not only clear your debts but also save the amount that you would have otherwise paid in the form of interest. 

3. Invest: saving gives you the opportunity to use your money for other purposes, and in the wake of the pandemic, investing has become one of the most popular options. It’s best to start with small amounts and assets with lower risk, and once an investor becomes familiar with the process, they can learn about other options. 

4. Travel: for many people, saving is synonymous with travel, especially for millennials. Planning a vacation can provide a compelling reason to save in the short term, particularly during the summer months. While it should not be the sole motivation, setting it as a goal can help encourage us to save. 

5. Paying for your children’s education: saving can also be an attractive option to secure your children’s education. Making the sacrifice of saving every month is worth it when we know that the reason we do it has a positive impact on the lives of the people we love most. 

6. Ensuring a good old age: one main motivation to set aside a small amount of money every month and invest it to obtain a higher yield is to ensure comfort during times of need. Saving and investing when you’re young can lead to prosperous results in your old age. 

7. Having financial stability: many of the points mentioned above are intended to allow you to plan your life in the medium and long term. Organizing your finances and learning to save money provides you with both security and freedom. This way, you can live your life the way you want.

Five practical tips to help you save

Once you have a clear understanding of why you want to save, the only remaining step is to determine how to do so. Here are five tips that can help you save more: 

1. Start keeping a record of your expenses: Keeping track of all your expenses is the first step to managing your finances effectively. There are various methods to do so, including using your bank’s app, a specialized app, Excel spreadsheet or notebook. It’s crucial to record all of your expenses. This practice will provide you with a clear idea of where your money is spent and which expenses can be reduced. 

2. Minimize your expenses: once you have recorded your expenses, you can cut back on non-essential categories. For instance, subscriptions you no longer use, impulsive purchases, and other minor expenses. You can also review your utility and internet bills for potential cuts. This includes electricity, water, gas, telephone, and internet bills. Compare prices across various businesses to get the best bargain. This recommendation is also applicable for other purchases, like food, clothing, and beauty products. 

3. Set a monthly budget: recording and reducing your expenses allows you to create a realistic monthly budget. The objective is to organize your finances by limiting how much you can spend each month. This limit will help you save money. One of the best known savings rules is the 50-30-20 rule, which states that we should allocate 50% of our income to fixed expenses, 30% to variable expenses and 20% to savings. While many people cannot afford to save 20% of their income, the important thing is to get started. The sooner you start, the sooner the habit will be created. The percentage allocated to savings may vary over the years.

4. Create an account for your savings: separating available money from savings can be very helpful when it comes to start saving. In this way, we avoid the temptation to spend the money we have saved. 

5. Pay yourself first: While most people wait until the end of the month to set aside their savings, experts recommend setting aside a percentage of our income at the beginning of the month. Setting aside 15% or 20% of our income on the 1st of each month will help us to grow our savings and live on the remaining 85% or 80%. 

If you want more information about saving, we invite you to read our article “How to save and learn how to invest” at the following link.