Wednesday, April 24, 2024

LOUISE FAIRSAVE: Importance of saving

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The alternatives to spending are saving and investing. Yet spending can be so much fun that it can sometimes be difficult to consider saving and investing at all. Today we consider the motivation that guides our spending or saving and investing.  
Motivation to spend falls into three broad categories:
1. to have a good time;
2. to feel better about oneself; and
3. to be nice to someone.
In summary, spending is about owning or experiencing something that makes you feel happy and pleased … for a price – the funds you are willing to part with to have that item or experience the related feeling. No wonder spending can be so addictive. Yet living and spending all you have can be quite foolhardy; it is important to consider the future and so save and invest part of the funds available today.
On the other hand, the motivation to save and invest is all about securing the future; the greatest motivation to save comes from trying to ensure we have enough money for our lifetime.  
So, if we knew when we would die, our planning for our finances could be on a surer footing. As we save and invest, we consider the typical lifespan and plan around it. Yet some of us will not live that long and some of us will live much longer. That is one of the greatest uncertainties of life.
The challenge is to live as balanced a life as possible whilst not knowing for the most part the lifetime allotted to us. Ultimately, our financial choices are ours. There is no significant merit in chiding or praising an extravagant or stingy family member or friend for their choices, mainly because we cannot define their lot in life.
So, here then are four main reasons for saving and investing:
1. To create enough wealth that we can retire either early or later and live on comfortably. On balance, we do not wish to retire old and broke, nor do we wish to have to continue working a full workload after the normal retirement age in order just to meet regular expenses.
2. For peace of mind in being able to support ourselves and our family in the face of setbacks like job loss, ill health or a debilitating accident.
3. To purchase something big, for example a house, car, boat or an extended vacation. This includes reducing or avoiding the use of debt for financing any big purchase.
4. To finance the cost of education or development for ourselves or for our dependents.
5. To invest in a side business in order to supplement or replace current or future means of earning. This entails significant risks as an investment can fail and leave us in an even worse situation.
6. For greater financial freedom in terms of our future lifestyle – travel, health and beauty care; toys, and so on.
7. To show our peers our relative financial success. Some describe this as being able to tell our neighbour how easily we can put them in your back pocket … or buy and sell them since we have accumulated so much more wealth than they have.  This is not keeping up with the Jones; this is leaving the Jones in the dust. 
Saving and investing help us all to deal with uncertainty; it is our way of dealing with the doubts and fears about the future, and with the development of ourselves and our dependents.
• Louise Fairsave is a personal financial management advisor, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.

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