Personal savings consist of that amount of money that, instead of spending, we save and reserve for the future. From a very young age, we have been taught that saving is something positive, but … why do we do it and is it really so important? There are a number of reasons, and one of them is having the ability to cope with unforeseen events, such as health or home emergencies.
Experts recommend that this amount of savings exceed three times our monthly income. In effect, having this support will allow you to assume the monthly expenses of the unforeseen without having to request loans to solve it. It is also important to save to achieve our goals: a master’s degree abroad? Own business? By saving every month since we are young, it is possible to achieve these goals and achieve our dreams. Thus, when it is time to retire, we will enjoy this stage in a calm way. Everything will be possible as long as we have savings.
According to EconomiPedia, a website of definitions on economics and finance, saving refers to the part of the income of an individual who decides not to invest or use it for consumption. This amount is kept as a reserve for future needs or contingencies, avoiding the danger that can be caused by an investment. In this sense, it becomes one of the most important practices within the economic agent of families, although it will only be achieved thanks to optimal estate planning.
Therefore, a cultural factor comes into play when deciding whether to invest or save money. In some countries like Spain, saving is seen as welcome, while in others not so much.
Many financial institutions and banks take advantage of this situation by offering financial products to their users to help them save. The most common are those associated with fixed and variable income, such as pension plans or retirement plans, Spanish concepts that refer to savings.
How is saving different from hoarding?
They are two different things. As we have mentioned, saving is the part of income that is not spent, and that contributes to financing investment, smoothing consumption, and the accumulation of capital with benefits for economic growth. The difference from hoarding is that, while it also constitutes an unspent portion of income, it does not have the potential positive effects that saving does. It is understood that when it is hoarded, a future return on that income or profitability is not sought, nor are they saved for a future income purpose, which allows stabilizing consumption over time.
Can you save money without using the financial system?
When income exceeds consumption, there are savings. But only part of that saving is channeled to the financial sector. It is what is known as financial savings. Most of the sources of these savings are traditional products, such as savings, checking, and CDT accounts.
What proportion of income is ideal to save?
Although the percentage of savings of a person or household varies according to their income, expenses, and interests, the recommendation by experts in the financial organization is that, at least, 10% of income be saved in order to face shocks common negatives such as unemployment or illness. Of course, percentages of savings above this proportion additionally allow the household to accumulate physical and human capital, which in turn improves household welfare.
Public and private savings
There are two types of savings:
- Public saving: It is the saving of the State. The objective is to cover future provisions to avoid future unexpected public expenses. It also helps maintain the welfare state (such as pensions).
- Private savings: It is family savings that can vary, being scarce or varied. The shortage can also be due to the family situation (that the members are unemployed or that their salary does not allow them to save).
Financial tips for personal savings
Keep a record of your expenses
Record your expenses by week or month, either in a notebook, in an app, or in a spreadsheet. This practice will help you identify those “ant” expenses that, added together, represent a large monthly expense that you have not noticed.
Decide how much money you will save
We recommend saving at least 10% of the income you receive. That’s right, we can maintain our lifestyle using only 90% of the income we receive and save the remaining percentage as a form of prevention.
Save with financial products
It is not advisable to keep your money “under the mattress”. Over the years, money can devalue, so it is important to ensure that it grows. Time deposits in banks or savings banks are a good alternative. However, hiring insurance is another savings option that, in addition to the interest rate, will provide you with coverage to protect your family in the event of an unforeseen event.
Prorate annual expenses
Household expenses fluctuate during the year. To avoid running into scares in peak months, calculate the expenses that are charged annually or semi-annually such as taxes, insurance, or other bills, and divide it between all the months. Save an item each month with this figure to meet expenses in a more comfortable way.
Use financial tools
If you are not to use pencil and paper, there are apps or online tools to organize your budgets and expenses. Many offer you a monthly summary of consumption, which will be very useful to see where you are spending the money. You will also find price comparators that will simplify your search and purchase decisions.
Avoid using credit cards
Installment purchases or credit cards make purchasing certain goods more accessible and comfortable. However, it is important to assess interest expenses to make optimal use of credits.
Control energy consumption
Electricity is one of the main energy uses of the home. You will reduce the bill if you turn off the lights when nobody is there, unplug the appliances that are not going to be used or use the washing machine at 100% of its capacity.
Installing a thermostat or thermometer in the home is also a good savings measure. The thermal sensations are very relative and this gives you an objective view on the real temperature, so you can adjust the temperature of the heating or air conditioning.