Why Saving & Budgeting Your Money Will Help You In The Long Run

As we get older, we take up more responsibility & ownership of our expenses, decisions that may turn either for the better or worse. Starting the habit of saving & budgeting now will ease the burden of future costs if there was no plan for the long term.

A. Saving:

A1. Gives you Peace of Mind

Your expenses will be covered when you have an adequate amount to pay for them. Look to lowering your cost of living to a comfortable level. It is one less worry taken off your shoulders among the multitude of things that troubles the millennial’s mind. One less thing to worry about allows your mind to focus on the things that are important to you (how to earn more money, have a fulfilling life, family & friends).

A2. Brings more Options to the Table

An obvious fact, money sure solves a lot of problems. You have enough to pay Uni Fees, that overseas trip to take a break from work or even that ‘F-U’ money to fire your boss. Some unexpected ways could be getting a higher quality of life (treat yourself) for a while, better healthcare (upgrading to a private hospital or ward) or even an opportunity to study overseas/ private school if you somehow are unable to enter a local Uni here.

A3. Provides a Safety Net

This is an emergency account that you store & not touch till unexpected (black swan) events come about. Without a doubt, this should be on top of the list of things to ensure while managing your money now. An accident that requires you to pay hefty medical bills (even after insurance), a sudden loss in a job or an expense that you are unable to immediately cover (a car breakdown, burnt down home). The point of the safety net is to tide you over while not allowing you to go into debt to others or a lending entity.

The act of saving money, squirrelling away for use in another time gives you assurance that your expenses would be taken care of, the discipline of saving is a hedge against the future.

B. Budgeting:

B1. Separates your money 

Having multiple accounts that clearly differentiate the use of each account enables you to keep track of your money & ensures some form of discipline to not spend indiscriminately. Think of money as a tool, each Dollar has its purpose and use, all money earned is equal but not all money should be used equally. Setting money aside in separate accounts allows you to plan for their specific uses, savings to be used in emergencies only, investing monies to grow your wealth & expenses for your living needs.

B2. Helps you Prepare for retirement (or any monetary goal)

Personally, I’m planning & budgeting with retirement in mind as the end goal. Conventionally we would think that our expenses would decrease in retirement but I beg to differ, enter frequency & volume. The ‘many’ years before the official retirement age of 62 (in FY2020), we would see our expenditure grow due to added responsibilities (home payment, cost of raising a family, higher insurance cost due to age) meaning higher frequency & volume of spending but as the years go by, most of the big ticket items would have been paid off so we would expect to pay less to live, right? WRONG. The frequency of payments may drop but the volume of payments would increase simply because our medical costs at an advanced age would be higher, also who’s to say that we will not fall sick as often? In fact, being older has an increased risk of getting sick more often & easier, therefore the costs in retirement can be considerably higher than expected. We should be planning for this scenario too.

B3. Allows you to Grow your money

You have to grow your money due to the simple fact of life that there is ‘Inflation’, over time the increased costs of raw materials to produce necessities will increase, manufacturers tend to pass on these higher costs to the consumer. Inflation in Singapore in the year 2019 was a range from 1.2% ~ 1.7%, we would round it up to 2% to err on the safe side. So with every dollar saved now, it would only be worth 98 cents in the next year. Inflation also compounds each year, meaning that your 98cents in the next year would be worth 2% lesser in the subsequent year. By budgeting a set amount of money from each month’s salary for investing, we are actively taking steps to ensure that the money we earn today can at least retain its value in 10, 20 years in the future as well as late into our final years of life enjoying our retirement.

Budgeting makes you more aware of how your money can work in your favour. Don’t be afraid to open several bank accounts to keep track of them, especially accounts that help combat inflation (if not just a little).

Ending Notes

Saving & Budgeting will provide a cushion for when unforeseen things happen to the best of us. We cannot tell when such misfortune comes to us but we can definitely be prepared for it comes. It empowers us to do more things.