Question:
From what part of income should someone take savings?
Options:
A) From leftover money after spending
B) From loans or borrowed money
C) From income before spending
D) From gift money only
Correct Answer: C) From income before spending
Explanation:
Before you start spending your money you should always make up some savings out of your income. This is what is referred to as Paying yourself first. It implies that one has to consider savings as part of the non-negotiable costs similar to the rent, groceries, or utility bills.
Lots of individuals have the syndrome of spending money first and hoping to save the remaining part. As a matter of fact, this seldom works. Between the unforeseen expenses, the lifestyle inflation or the impromptu purchases, one hardly ends the month with anything to spare at the end of the month. Thus, financial consultants and wealth managers are keen on stashing some savings as soon as you get your pay.
When you prioritize saving rather than making it as a second concern, you are making a conscious choice to be financially disciplined, responsible and have sustainable security thereafter.
Why Take Savings Before Spending?
Consider savings as a power of self-protection. When all your expenses are covered then you will consider saving you are likely to miss it. The problem is that once you make it a regular payment on your monthly payment, just to yourself in the future, then you begin to create actual financial security.
Importance of Savings
Here are some of the main reasons as to why it is among the most important things to start saving- and save frequently:
1. Emergency Preparedness
Life is uncertain. This is because emergencies like hospital bills, loss of jobs or emergency repairs might arise at any time. As saving money first would save you the trouble of depending on credit cards or borrowing money and getting into a continuous cycle of debt.
2. Financial Goal Attainments
Saving can take you wherever you want to be in life be it to own your own home of to open your own business and finance your higher education or even travel around because what savings does is enable you to pursue your goals without having to access credit cards or even delaying your payment because you are under financial strain.
3. Money, Financial Independence and Security
Having savings will provide you with the additional options. It enables you to quit the bad jobs, take decisions without any hesitation and take risks. It brings an assurance of mental satisfaction that you are feasibly insured.
4. Retirement Planning
The longer you start saving towards your retirement the more it will enjoy compound interest. Early entry will mean that your money has had time to increase throughout decades, so you will be able to live comfortably in your old age.
5. Development of Investments Opportunities
When you have a good proportion of savings, you have choices to invest in mutual funds, shares/stocks, real estate, or even gold. These can be used to multiply your funds and give you passive incomes.
Frequently Asked Questions (FAQs)
1. How much should I ideally save from my monthly income?
The majority of the professionals advise putting aside no less than 20 percent of your salary (50/30/20 approach: 50 percent of needs, 30 percent of wants, 20 percent of savings). Nevertheless, begin at any amount, which is comfortable, there is less important first of all to keep it consistent.
2. Is saving before spending more effective than saving leftover money?
Yes. Before you spend, save so that you save some amount of money every month irrespective of how you spend. It eliminates the danger of missing or coming up with lame excuses at month end.
3. Can I save money if I have debts?
Absolutely. You need to save some amount of money towards savings despite paying debts. The availability of an emergency fund eliminates the need to additional borrowings in such circumstances.
4. What’s the best way to make savings automatic?
Arrange to automatically transfer some money in your salary account to a savings account or investment plan on the day-you are paid. This eliminates the urge to spend the money.
