1 Why should we save up for the future?
There are a variety of reasons that may explain why people may save money instead of spending it on consumption. Some of these reasons or motives are discussed below. However, please note that as we are all different, you may have other motives not mentioned here.
Future purchases – both known and unknown
If you know what you want in future, you can put a certain amount aside each month (or week), based on a calculation of how much you need for a particular goal – such as buying your first home, a car or even to save for Christmas. It could simply be to have money put aside for items or services you don’t yet know you need or want.
A safety net
Another reason is the ‘precautionary motive’ – perhaps more commonly known as ‘saving for a rainy day’. This involves building up a buffer of funds to provide for unexpected events and bills, which can provide you with emotional and practical security because you know you have funds to call upon if you really needed them.
Supporting a change in lifestyle
Having sufficient savings could enable you to leave a job, to take a break for a few months. It could also enable you to do or buy things that you want, or to take advantage of opportunities that arise (such as being able to pay for education or start a business).
Planning for later life
One of the most significant purposes for saving is to help provide money for retirement. Another reason could be to have money set aside to pass to your dependents when you die.
The reasons above all underline an important overall aim of having savings – to ensure you do not overdo it now and leave yourself short for important future expenditure, and to create financial security and independence.
Activity 1 Your reasons for saving up for the future
What plans do you have for the money you have currently saved or invested? Over what time period do you expect to use this money?
If you currently have no savings, consider the objectives you would have if you started to amass them.
Answer
While your response will reflect your personal circumstances, savings usually have multiple purposes – from a safety net to deal with immediate financial emergencies, to a pot of funds for future treats or necessities such as a new car or a world cruise, to a store of wealth for your family to benefit from in the future. The short-term use versus long-term use of savings needs to be reflected in where you save or invest your money – some ideally needs to be easily accessible while some can be put aside for many years.