Saving is a greatly misunderstood, but important concept in finance. The reasons for this misunderstanding include the thinking that saving
can be done only by the wealthy or those having significant surplus funds for which they have no immediate need. As such, saving is exclusive to low income earners whose low income in any case, is inadequate to meet their existing needs, let alone saving.As well, there is the misconception that saving is of no use because it will eventually be withdrawn and spent. These all are myths that are so far from the facts of saving.
Saving is an important aspect of financial planning, which if you fail to do, someone will plan for your money and end up taking it away from you. Just think about how often someone asks you for financial assistance that you later discover is frivolous.
Saving is usually interpreted as postponed consumption, which means that the saver denies himself or herself of spending now in order to be able to spend more in future. This of course, recognizes that when money is saved, especially in a financial institution that pays interest on it, the amount saved will grow with the additional interest. The logic then is that, if a man wants to spend more in future, he needs to put away some money today in a saving arrangement that pays interest.
Saving is a habit that is worthwhile to cultivate for the following reasons:
- The amount saved is similar to paying yourself, as what you spend is simply the payments that you make to other people. So, no saving, no payment to yourself.
- Money can be saved for a specific, important future purpose.
- Saving is also a good means for starting later an investment scheme, such as commercial business, real estate, stock market or manufacturing.
- Saving can also be made for the rainy day to address the unexpected.
Saving should be treated as a compulsory deduction from income before you start spending. When you do this consistently, you will be amazed at what the amount saved will become, Let us assume a young school leaver earns N30,000 per month and decides to save N3,000 monthly (being 10% of his earnings). In six months, he would have saved N18,000 and in ten months, he would have as much as his monthly income of N30,000, without interest. If the saving is with a commercial bank that pays 3% interest per annum, the saving balance will be N30,912.48 at the end of one year.
The interest on saving may be small, but what is more important is the amount of money saved that now is available to the saver. The benefits from saving increase with the amount saved, longer period of saving and higher interest paid. This is how wealthy persons, families and nations became prosperous. If you want to spend more in future, then start to save and invest today – not tomorrow.
Dr Biodun Adedipe