Saving money is one of the most fundamental parts of building a successful financial life. It’s drilled into us as something we “should” do. We are often bombarded by the tips and tricks and rules of how to save and how much to save. But an important question gets lost among the noise: why should you save money? 

Many people don’t save because they don’t have “enough” to save. But even if you can only save a little, that amount still makes a big difference.  

Your savings builds a foundation for a successful, healthy financial life. Saving money can protect you — and the rest of your assets — against unexpected emergencies. It can offer you peace of mind that’s worth far more than its value in dollars. 

You also have more flexibility and freedom of choice in life when you save. When you save, you can make more of your dollars work for you. And that helps build wealth even faster. 

Why You Should Save Money, Reason #1: To Have Peace of Mind

At its core, saving money gives you peace of mind and better sleep at night. You want to be confident that you can pay for unexpected purchases. 

As you build up your savings, you eventually want to be able to continue paying the bills if you lose your job (or decide to quit!). This is where the emergency fund comes in. It’s the cornerstone of any solid financial plan. 

The emergency fund (or however you want to call your cash reserves) is like insurance against the unexpected. When you’re in a pinch, it can protect you from selling stocks, dipping into your 401k or taking out expensive loans. 

A good amount to save in the emergency fund is about 3 to 6 months of living expenses. Of course, this amount ultimately depends on how financially secure you feel. We also call it the “sleep-well-at-night” number.

For example, someone who is self-employed and starting a new business may want to have 6 to 12 months of living expenses saved in case they have a harder time getting things off the ground. 

On the other hand, someone who feels stable in their career path might need to save only 3 months of living expenses. For instance, your employment contract might have severance protection, or you may have friends or family that could always take you in for free while you’re in a period of transition. 

The best thing to do is save your money in high-yield savings account that’s separate from your other bank accounts. Then, don’t touch it unless for emergencies and replenish what you take.

Gain More Freedom

As you build your cash reserves, your perspective may begin to shift. You can spend energy on more creative and joyful pursuits instead of stressing over money.  The “what if” nightmare of losing your job may transform into a “what if” daydream of quitting your job to do something you’re more passionate about. Case in point: I quit my job, went back to school, and pursued my career in financial planning all because I had an emergency fund. That extra money helped make my dreams a reality. 

Try this mental exercise: Imagine having all the money you need, and then ask yourself: What would I do differently? 

Probably a whole lot, right?

Ultimately, you have more control over your life when you have extra money in the bank. Being less constrained by your resources means you have more freedom to do what you want with your time.

Build Wealth Faster

Building wealth really starts to take off when your money works for you. 

Saving money as cash is more of a protective measure. Even in a high-yield savings account, the best level of interest is somewhere around 1 to 2% in normal times, which likely doesn’t even keep up with inflation. 

But your cash savings give you a cushion so that you can invest your money into savings vehicles with much higher returns, like a retirement savings account or taxable brokerage account. You can shift your focus toward building an investment plan that helps you achieve big financial goals.  

When you have an investment strategy that includes the stock market, an emergency fund can be worth its weight in gold.  If you have less liquid cash on hand, you may be more likely to panic in volatile markets. If you have a comfortable cushion, you may find it easier to ride out times of uncertainty.

No matter where you are in your journey of saving money, all of the aforementioned reasons to save apply to you. The benefits of saving are life-changing, literally. 

It is tough to see how far your savings will take you when you’re in the early stages. Maybe you’re only able to put away $100 a month right now. But determine your target for cash savings and stick with it. Remind yourself often of the reasons why you should save. Whatever your savings plan is, revisit it on a regular basis. Once you become comfortable putting away money, see if there are ways you can stretch yourself and save more so that you reach your target faster. Your unique goals and life vision are worth the energy.

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