Why should I save money when getting loans is so easy!

Asking why you should save money when getting loans is so easy is like asking why you should eat healthy when you can just order out. Both have their benefits, but neither is satisfying without the other!

Loans and savings are not interchangeable. Both must be included in your financial plan. A good mix of both can help you save money in the present while allowing you to invest in your future. Here are some ways savings can help you achieve your financial goals: 

Make that large purchase

If your dream is to own your own home, you probably know that you will have to pay for a down payment by yourself, even if you are getting a home loan. While a loan might take care of a huge part of your costs, saving up for your down payment is not that simple either, as it could take you months. Make sure you plan ahead and start saving up the money you need early, as you will also have to pay back the home loan.

Avoid debt traps 

Saving up enough to limit your debt liability is the most financially sound practice. Relying heavily on loans can actually increase your monthly costs through increased monthly interest payments and penalties for delayed payments. This can get you into a debt trap where you need to take a new loan to pay off an existing loan.

Instead, drawing up a budget and sticking to it every month will ensure you are meeting your saving goals and not spending more than you have. Having enough savings can also help you pay off your debts early, if you wish to do so! Debt is a valuable way to work towards the life that you want to live, but only if you are in control of it! To understand more about debt, read our article “Could your decision to take another loan make you regret later?“

Live a stress-free life

Depending on loans for your expenditures can put a large amount of stress on you eventually because you will keep trying to pay them off. Today, a loan can help you afford something you cannot. But a few months or years down the line, pending EMIs may get in the way of buying other things, if not managed properly. Instead, focus on building your savings to dip into if you need it, and only take on loans for larger expenditures that you cannot save up for in one go. 

Pro Tip: Invest a part of your savings in a long-term recurring deposit when saving up for a large goal such as your child’s higher education. 

Help your kids get a financial head start

Saving up now can help your family lead a better life in the future. By saving and investing in long-term assets, you can leave them a financial legacy of wealth that will help them get started on their own journey towards a financially secure future. For example, invest in a long-term FD of 20-30 years that could be used for your grandchildren’s education. 

Pursue your personal goals

Following your heart to achieve your personal and financial goals is important- but it’s easier when you’re not worried about how your next month’s bills are going to be paid. Saving up money can give you the opportunity and financial freedom to pursue a career you’re passionate about, or take a year off to travel the world, or start a business of your own. By having savings to fall back on, even the riskiest decision can be a prudent and well-planned one. This is especially helpful in case you don’t have a steady source of income for a few months.

Tackle emergencies 

Life is unpredictable- an unexpected medical or financial emergency can set your savings back if you’re not prepared for it. That’s why it’s important to put money into an emergency fund to tackle these situations. Always ensure that your emergency fund has three to six months’ worth of expenses. To know more about how much to save, read our article on how to determine the size of your emergency fund.

Pro tip: Money saved for emergencies should be easily and readily accessible, so open a separate savings account for this specific purpose.  

Live your dream retirement

It’s important to start saving for your retirement early on in your life for two reasons- the first is the lack of a regular income and the second is the inflated cost of everyday expenses in the future. To do this, it’s important to estimate the cost of retiring in the future (by looking at the current rate of inflation) and budgeting a portion of your salary every month for your retirement corpus. 

Pro tip: If your employer offers a PPF plan, make sure you contribute the maximum amount to it. This will be matched by your employer, enhancing your retirement corpus. 

Closing thought

As you can see, the importance of saving cannot be overstated. Savings are what you can show for all your years of earning. It's like your way to demonstrating that when you earn money, you spend it wisely, so it can help to get you the life you want. And finally, exercising the discipline of saving prevents you from facing a financial crisis in the future.