Why Bother Saving Money? – Millennial Money

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The year is 2022. Somehow, we have ended up in a dystopian nightmare, complete with a deadly pandemic, an ecological crisis, and fascist ideologies on the rise. And icing on the cake, it feels like we’re teetering on the brink of World War III.

So why even bother saving money?

That’s a question millions of people around the world have been asking themselves. A recent study showed that the average amount of US personal savings accounts dropped 15% between 2021 and 2022.

Let’s be honest here: Saving money is not always easy. It can feel like there are a number of different cards stacked against you, even in the best of times.

But saving money is critical for your financial security. It can even help you achieve financial independence.

Let’s dive into why you should bother saving money . . . As well as some ideas on how to get started.

Reasons to Start Saving

Putting money into a savings account on a regular basis can feel like a chore. Here are some reasons to keep your eyes on the prize.

To Cover an Emergency

You’re going about your life just fine. Not a care in the world. Then, suddenly, your car needs a new tire. Your basement floods. And your cat breaks a leg.

As my grandmother says, when it rains, it pours. And disasters like these always seem to happen at the same time. Each unexpected expense piles up on top of the last unexpected expense.

But if you have emergency savings, you don’t have to worry about how you’re going to pay for all these expensive repairs and/or pet surgeries. That’s because you have enough money stashed away to cover it all.

Now, saving money for an emergency fund sometimes feels tricky, especially if you’re living paycheck to paycheck like all too many millennials.

But trust me; it’s worth it. That’s especially the case because the alternative—putting emergency expenses on your credit card—will likely only put you deep(er) in debt. And thanks to pesky interest charges, that will cost you dearly in the long run.

We’ve put together a guide to starting an emergency fund. It includes a handy calculator that can help you determine how much money you should save for your “rainy day.”

To Afford a Down Payment on a Home

A really good friend of mine wants to buy a house very badly. He’s sick of living in an apartment. He wants a yard to grow plants in and a workshop so he can putter around with his woodworking hobby.

There’s a problem, though—he has zero savings. And in the currently hot seller’s market, if you can’t make the typical down payment—and then some to sugarcoat your offer—there’s no point in even going to an open house.

Now, there are several programs that can help you get a mortgage without the traditional 20% down payment. But you—and your dream home—might not qualify for them.

And even if you do, you still may need to pay private mortgage insurance (PMI), which adds to your cost.

If you have at least 20% of a home’s list price saved, you’ll have a better chance of making a winning bid for the property you want. You’ll also save money on PMI and have a lower monthly mortgage payment, too.

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To Make a Big Purchase Without Going Into Debt

Homes aren’t the only expensive purchases out there.

Say you want to go on vacation or buy a new car or put a deck on your house. A lot of people pay for these pricey purchases by slapping them on a credit card or taking out loans . . . And then forget to pay them off before hefty interest rates start adding up.

I am not a fan of credit card debt at all—even for points or frequent flyer miles. Using a credit card is a slippery slope that can leave you in debt.

It is always, always, always better to pay for something entirely upfront. And to do that, you need to have money saved for one of these big expenses.

Luckily, there are a number of personal finance apps that make meeting a specific savings goal a piece of cake. Personal Capital is one of our favorites.

To Make Money on Interest

One of the biggest objects I hear to opening a savings account is that they pay practically nothing.

That may have been the case a couple of years ago. But interest rates are heading back up.

That’s because the Federal Reserve (the US central bank) has committed to raising rates in an effort to curb inflation. The thinking is, if money costs more to borrow, people will spend less of it. That will drive down the demand for stuff, which in turn will lower inflation rates.

At the same time, these higher borrowing costs are good news for savers. Banks will need to pay you more for parking your money in a savings account.

Of course, the best bank accounts are the high-yield savings accounts you’ll find from online-only banks. These banks can afford to pay you higher percentages because they don’t need to cover the expense of operating brick-and-mortar branch offices.

Some online banks—such as Axos—even offer an interest-paying checking account.

It might also be worth checking to see if you qualify to join a credit union. Because these financial co-ops are nonprofits that don’t have to pay profits to shareholders, you can usually find higher interest rates here than you would with a traditional bank account.

To Save for Education (Your Kids’ or Your Own)

One of the best investments you can make is in higher education. Depending on the career, having a college degree can increase your earning prospects substantially.

And if you have kids, you’re going to want to save for their education, too. After all, you don’t want to saddle them with student loan debt for decades of their lives.

trust me; get your parents to stop nagging you about it by signing up for a 529 plan right now.

To Save for Retirement

You didn’t think we’d let this one slide, did you?

Right now, retirement feels decades away—if you plan to ever take it at all, that is. When you’re young and in good health, it’s hard to imagine you’ll ever be incapable of working.

But sadly, you’re not bionic (yet). There may come a time when you’re just too damn old to keep actively earning an income.

Hell, you might even feel like giving up your 9-to-5 far earlier than that—financial independence, retire early (FIRE) movement, anyone?

Well, there is zero way you’re going to do that without having some retirement savings. And even if you opt for a traditional retirement—which will probably be at age 92 at the rate we’re heading—there’s no guarantee Social Security payments will cover your expenses, let alone even exist.

No matter your financial situation, you need to make retirement savings a priority right now. And yes, we have a guide for saving for retirement too.

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When Should You Start Saving Money?

In most cases, you should start saving right now, no matter what your financial situation is. Start building a savings habit today, even if you can only put a dollar in a mason jar.

But I’m willing to bet you can save more than that.

Pro Tip: Set Up a Budget

Now, if you say you can’t afford to start saving now, odds are, if you create a budget, you will be able to.

There are plenty of awesome apps that can help you create and stick to a budget. (YNAB is our top pick.)

They’ll help you analyze your spending habits and find a comfortable amount to save without cutting into your living expenses.

Who Shouldn’t Start Saving Now?

OK, in the previous section, I said “in most cases” you should start saving now.

So who shouldn’t start putting away some money?

Answer: anyone with credit card debt.

If you’re carrying a revolving credit balance, you are basically throwing money away in the form of interest charges.

Pay off your debt balances as soon as you can. Put every single penny of extra money toward this financial goal.

When you eliminate your interest expenses, the rates of return can be north of 20% annually—a percentage you’ll be hard pressed to make in any investment account.

That’s not to mention the other positive effects of paying off your credit cards, like getting a higher credit score and sleeping better at night thanks to less financial stress.

The Bottom Line

Even though the future feels uncertain and you may have the urge to say “YOLO” and max out your credit cards at Disney World, don’t.

Instead, save money today so tomorrow—or next month, next year, next decade, etc.—can be better. You’ll be glad you did.

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