If you’re a regular reader you might have read we have just had the air conditioning repaired in our car. While paying out £324 really hurt, I was comforted knowing we had this money stashed away. This has made me reflect on why is having savings important?
So what are the other benefits of having some savings?
1. Emergencies
Other unexpected things can happen in life. We cannot always be prepared for every possible eventuality but we can do our best. Things can break down at the worst possible time and it’s nice to be able to act decisively and deal with it.
The worst scenario is when things breakdown and people have to borrow money to deal with the situation. Sometimes people will borrow at expensive rates and this can lead to disastrous situations. So having some money stashed away is very important indeed.
2. Replacing things that wear out
If we were really smart, every time we bought something – like a car, a washing machine, or a TV etc – we would start saving for its replacement. So after 5 years or so, we could just replace it.
Before I got married, I used to put aside all of my Probation Service travel expenses. In those days I was classed as an essential driver so I used to get about £70 a month even if I never drove my car anywhere. By the time I needed to buy a replacement car, most of the money was already there.
Alternatively (and this is what we normally would do) keep something rolling along for 5 years and the moment anything goes wrong, replace it immediately. It’s a nice feeling to know we can replace something straight away.
Having said that, Hannah managed to break the glass on our built-in microwave oven (again!). It is over 10 years old and replacing the whole microwave oven would be very expensive and it wouldn’t fit with the oven. So we had it repaired.
4. Gets you into a good habit
Being able to adjust your finances so you put a little money aside each month is prudent. It is a good, healthy, sensible habit to get into. “Living well within your means” is always a good thing to do.
Knowing how much can be tricky. One rule of thumb is to have 3 months’ expenditure available as accessible cash, perhaps a little more might be a sensible step. We need to take care ourselves as we are gradually nibbling into our savings each month, all to do with this early retirement lark, so we do need some caution ourselves.
5. It’s a nice feeling
Knowing there’s some money stashed aside for replacements, repairs or other emergencies is a nice feeling. It certainly takes some worry away with such peace of mind.
6. Allows for some generosity
Perhaps I need to write a different blog post about having money to give away but nevertheless it will still fit here.
Having money saved does allow you to be generous when the opportunity arises. Some would rightly argue the best form of giving is when it is done sacrificially and this is true. However, it is still nice being able to give spontaneously and having savings allows you to do this.
7. Interest
With a bit of luck, you might even get some interest paid on your savings. Over time this will be compounded ie interest on interest. On the other hand, these days interest rates on simple cash accounts is miserly but don’t let that stop you having money set aside for those unexpected costs.