The importance of saving should not be underestimated. The key to saving well is to start saving and investing your savings from early in life. Any savings account or investment that yields interest or dividends produces compound interest, when the interest or dividends are reinvested. Compound interest is the interest earned on the interest or on the dividends and is a powerful principle of growing wealth over time.
Peace of Mind
We all know unexpected circumstances in life can occur but having money saved, gives you peace of mind about the future and should these events arise, money saved will help alleviate stress. Money set aside for emergencies or unexpected expenses such as, car or home repairs, is always the first reason to have savings.
Saving money creates the capital needed to start investing. Equities have proven to be the largest wealth generator out of all the asset classes. It is possible to achieve a passive income by building up investments over time. Reinvesting the proceeds from the investments, helps investments grow further.
Buying a Home
In order to qualify for a home loan from a bank, a deposit of at least 10 to 20% of the price of the home is usually required. The money for the deposit cannot be acquired in the form of a loan from a bank. There are also other costs and fees involved in buying and owning a home, therefore having savings allows you the opportunity to become a home owner.
Buying a Car
The same as buying a home, a deposit for a new car is also required if you wish a bank to finance the vehicle. Quality cars are generally not cheap but having some money saved to contribute towards payment upfront, will get you ahead and reduce the monthly instalments on the car.
Paying off a credit card is going to be more difficult if you use your card for every emergency that comes up. Instead use money saved which forms a reserve fund to pay unexpected expenses, rather than using credit cards. This will help reduce the accumulation of debt over time.
The importance of saving is perhaps most obvious when an event outside our control threatens our financial security. Losing your job, for example, can lead to stress and financial struggles. Having money saved in such a circumstance will help to minimise the stress and give you time to find another job.
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The facts and opinions presented in this blog article do not necessarily reflect those of the CybiWealth team or FIM Capital Limited. FIM Capital is licensed by the Isle of Man Financial Services Authority and authorised and regulated by the Financial Conduct Authority.