Home » Industry » Rationale for Individual Savings

Whenever someone gets paid they usually face two options – either to spend it all or to spend part of it and put a portion aside. Once they decide to put aside a portion, they will have made a decision to save. Savings is the portion of income not spent on current expenditures. Because a person cannot predict what will happen in the future, money should be saved to pay for unexpected events or emergencies.

An individual’s car may breakdown, the roof of their house could begin to leak and would need to be repaired, or a medical emergency could occur.

One might even want to save for school fees or university education for their child as short-term or long-term savings goals.

The ability of an individual to save is closely related with the life goals of an individual. Setting goals helps a person to save rather than spend money.

A goal is defined as the end result of something a person intends to acquire, achieve, do, reach, or accomplish.

Financial goals are specific objectives to be accomplished through financial planning and include saving money.

Setting goals helps an individual identify and focus on items that are most important to them and then make decisions that help obtain those items.

It is important to understand in financial planning that without savings, unexpected events can become large financial burdens.

Saving should actually be a culture that we need to develop as Zimbabweans because without adequate savings, it is not possible to grow as fast as we would want to.

This article will outline some of the reasons why people should develop a culture of saving. Every person who earns an income should be able to set aside a fraction of his income as savings.

It is important to have an emergency fund set aside to cover unexpected expenses or eventualities.

This could cover an unexpected car repair, your emergency or a sudden job loss. Ideally your emergency fund should be able to carry you through for a few months should be adequate to cover about two to six month of your expenses.

These savings could include savings in bank or a good insurance plan that will help you survive the unexpected financial events in your life

Another rationale for saving is to cater for your retirement.

Going on retirement should not be a painful process once you have accumulated enough savings during your working life. The sooner you start saving for retirement, the less you will have to save in the future. You can put your money to work for you.

As you continue to contribute overtime you will be earning more interest on the money you have, then you put in each month.

You should at least be matching your employer’s contribution and eventually you will want to contribute 10 to 15 percent of your gross income.

Saving for retirement is also important because these resources would help your family in case of your untimely death.

Reasons for savings are varied. Another reason for saving is to cover vacation.

Zimbabwe is endowed with various attractions such as the Victoria Falls and Great Zimbabwe and it should be every Zimbabwean wish to visit them.

Given the low incomes prevailing in the country, this dream can only be realised if someone develops a culture of saving.

This type of saving is called saving for fun. Another reason to save is to ensure that you have money when an opportunity arises.

Savings can give you a precious sense of freedom and independence when certain opportunities arise in your life. If an opportunity comes your way, you will have choices and chances to change jobs, to move, to start a business and to invest.

The feeling that you have choices can give you a sense of abundance and well-being.

You would find that saving becomes an exciting, confidence-building experience and assists in attainment of financial goals.

When you achieve a goal, you prove to yourself how capable and competent you really are. You also become a good role model for your children. Another reason for saving is that it helps to build your character.

It has been observed that those who learn enough discipline to save are able to grow and mature in to responsible people.

That kind of discipline teaches self-respect and earns one the respect of others. It shows you can maintain control of your own life and avoid emotional decision making.

Buoyed by that success, it encourages further goal setting and the knowledge that you can accomplish what you strive for.

When a family member or friend is in difficult situations, those with savings may be able to help the loved one financially.

The most ideal way to save is to keep your savings in a bank where the money can earn interest.

More-so bank accounts offer the owner leeway to withdraw money anytime, anywhere and use it in case of emergencies.

An account holder also has access to loans and deposits after opening a bank account.

Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on abel@baz.org.zw or on numbers 04-744686 and 0772463008

Source : The Herald