There’s No Alternative to Saving.
The argument that saving a little bit is useless because you might have to spend it is similar to saying eating is useless because you’ll get hungry again. Yes, it can be dispiriting watching small amounts of savings grow. Still, even small savings can help you avoid payday loans or credit cards that will end up costing you far more.
Life is unexpected and expensive. Having even a little saved up is the only way to protect us from whatever curve balls life throw at us.
Saving Small Amounts Still Makes you Money
Maybe you only saved $25, but hey, that’s enough to open a checking account (that new checking account may even offer a bonus of as much as $400). With a checking account, you can get your paycheck direct deposited for free, saving you the cost of check cashing. You can automate your payments so you can avoid late fees, save time and not have to live in fear of getting your heat cut off.
Having a bank account can also help you build credit and apply for lucrative credit card offers. Credit cards grant you a 30-day interest-free grace period before you are required to pay for purchases. Some credit cards can give you great rewards. Other credit cards give you 0% introductory financing, allowing you to float your expenses interest-free for months without paying more than the minimum. Granted, credit cards can come with a host of potential pitfalls, but used wisely, they can help in an emergency and can provide valuable benefits.
Savings are the road to wealth. Few people will ever make seven figures in a year. Still, even middle-class earners can save and build up a six- or seven-figure nest egg with diligence and patience. Again, your savings won’t be a lot at first, but your money is making you money and that is the middle class road to riches in a nutshell.
The Habit of Saving
Ever think, when I make $X I will start saving? It’s about as effective a strategy as waiting until you’ve gained X pounds before you start dieting. A lot of people have this future dream that when they make a certain amount of money, saving will be automatic for them then. Instead, though their incomes rise, their savings don’t. It’s called income inflation. Without the habit of saving, we find ways to use the money we are given. It doesn’t matter how much money we make – saving is a muscle and it becomes easier the more you exercise it.
Having savings can change your behavior. Putting money in a bank account makes it harder to spend the money than having it as cash. For instance, you might get a raise and remember to put a portion in your newly opened checking account. Rather than flittering it away on something you don’t need. And denying yourself whatever extravagance you wanted for the $5 savings will be hard at first but it gets easier with time, especially as you start seeing the savings grow.
Having savings can also change your perception of yourself. You can’t say that you’re a spender and not a saver. You’ve got savings now!
Saving Gives You More than Money
There are actually other benefits to saving rather than just having more money. Having savings can bring you peace of mind. After two years, you could have about $500 in the bank, which would be enough to cover many car repairs, a short period of unemployment or a doctor’s visit. Rather than panicking about where that money will come from, you have a buffer before you have to worry. Studies have shown that we make worse financial decisions under stress. It is needless to add additional stress to our lives by not having any money in the bank.
Saving also allows you to dream. Rather than spending your time worrying whether you can afford groceries if you miss a paycheck, you can think about the future. If you saved a little bit more, maybe you could reduce your hours in the future. Maybe you could take a vacation. Or you could give back to your favorite charity. Maybe retirement becomes a possibility. What seemed impossible when you started saving $5/week becomes more likely after you’ve saved diligently and seen your money grow.
This is an extreme example of course. Most of us can save more than $5/week. But if the benefits of saving even small amounts on a small income are clear, you have no more excuses not to start saving. And remember that while saving a little now might seem useless, a small step in the right direction is better than a step in the wrong direction. Never be discouraged if you’re going in the right direction.
Conclusion: The Benefits of Saving Even Small Amounts
Is there an amount of money that you think is too small to be saved? No, because even small amounts can help you build good habits, earn interest, and give you peace of mind. Don’t worry that your progress is slow – worry if you’re not making any progress at all.
I think developing the habit of saving is an important ingredient in developing one’s financial literacy. Hard to become a good investor and build wealth without an understanding of savings. Just experiencing the effect of compounding, on any sum, is powerful.