Dr Sanderson Abel
A person is usually faced with two options once they get an income – either to consume total income or a part of what they get and set aside a portion. Once they decide to put aside a portion, they will have made a decision to save. Savings is the portion of income not spent on current expenditures. Because a person does not know what will happen in the future, money should be saved to pay for unexpected events or emergencies. An individual’s car may breakdown, the roof of their house could begin to leak and need repair, or a medical emergency could occur.
One might even want to save for school fees or university education for a child as short-term or long-term savings goals.
The ability of an individual to save is closely related with the life goals of an individual.
Setting goals helps a person choose to save rather than spend money. A goal is defined as the end result of something a person intends to acquire, achieve, do, reach, or accomplish.
Financial goals are specific objectives to be accomplished through financial planning and include saving money. Setting goals helps an individual identify and focus on items that are most important to them and then make decisions that help obtain those items.
It is important to understand in financial planning that without savings, unexpected events can become large financial burdens.
Saving should actually be a culture that we need to develop as individuals because without adequate savings, it is not possible to grow as fast as we would want to. In this article I outline some of the reasons why people should develop a culture of saving.
Why should individuals save?
Every person who earns an income should be able to set aside a fraction of his income aside as savings. It is important to have an emergency fund set aside to cover unexpected expenses or eventualities. This could cover an unexpected car repair, your emergency or a sudden job loss. Ideally your emergency fund should be able to carry you through for a few months should range from about two month to about six month of your expenses. These savings could include savings in bank or good insurance plan in place to help you survive the unexpected financial events in your life
Another rationale for saving is to cater for your retirement. Going on retirement should not be a painful process once you have accumulated enough savings during your working life. The sooner you start saving for retirement, the less you will have to save in the future.
You can put your money to work for you. As you continue to contribute overtime you will be earning more interest on the money you have, then you put in each month. You should at least be contributing up to your employer’s match and eventually you will want to contribute ten to fifteen percent of your gross income. Saving for retirement is also important because these resources can help your family in case of your untimely death.
Zimbabwe is endowed with various attractions and it should be every Zimbabwean wish to visit them. Given the low incomes prevailing in the country, this dream can only be realised if someone develops a culture of saving.
This reason for saving can be termed saving for fun. You can save up for your tour of the mighty Victoria Falls or the Great Zimbabwe.
Alternatively you can visit other places scattered around the country and other places dotted across the Globe. For this cause to be realised there is need to save your vacation expenses.
Another reason why you need to save is that you need to be ready when opportunity knocks. Savings can give you a precious sense of freedom and independence when certain opportunity arises in your life. If an opportunity comes your way, you will have choices and chances to change jobs, to move, to start a business, to invest. The feeling that you have choices can give you a sense of abundance and well-being.
You would find that saving becomes an exciting, confidence-building experience and assists in attainment of financial goals. When you achieve a goal, you prove to yourself how capable and competent you really are. You also become a good role model for your children who look to you for assurance that life is good and that dreams can come true.
Another reason why you should save is that savings helps to build your real character. It has been observed that those who learn enough discipline to leave saved money alone rather than giving in to another spending temptation are able to grow and mature. That kind of discipline teaches self-respect and earns the respect of others. It shows you can maintain control of your own life and avoid emotional decision making.
Buoyed by that success, it encourages further goal setting and the knowledge that you can accomplish what you strive for. When a family member or friend is in difficult situations, savers may be able to help the loved one financially.
The most ideal way to save is to keep your savings in a bank where you can earn interest on the money that is saved in the bank accounts, can withdraw money anytime, anywhere and use it in case of emergencies and can avail other product benefits like loans and deposits after opening a bank account.
Dr Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463008.