If you’re like me, saving money feels like a chore.
Your bank balance is just starting to look healthy again after pay day and what are you going to do with that cash?
Well life is for living in the moment right so it’s tempting to do a bit of online shopping and indulge in a takeaway.
Or perhaps you should put some money into your personal savings.
It’s a tough choice.
Patience and discipline vs temptation and fun.
And with a third of Brits having less than £600 in savings, it is clear that saving is not top of everyone’s priorities.
So you may be thinking about the advantages and disadvantages of saving money.
Well keep reading for all the benefits of saving money in the bank and some hidden drawbacks to growing your personal savings.
Advantages of Saving Money
Ok, what’s so good about saving money then?
Become financially independent
If you don’t want to or can’t rely on other people, aka the bank of mum and dad, forever then saving money is the key to becoming financially independent.
It will help you stand on your own two feet and make your way in the world. With even a small nest egg of savings, you could afford the deposit for renting a flat, get on the property ladder or pay off student debts.
Less worries about surprise expenses
One of the biggest benefits about saving money is reducing stress and ability to cover unforeseen expenses.
Simply living paycheck to paycheck without any savings leaves you exposed to emergency costs that can’t be planned for.
If you’ve got a chunk of money stashed away you can pay for things like car repairs, broken mobile phone or house expenses without having to take financially crippling loans or run up large credit card bills.
You’re covered if you lose your job
What would you do if you suddenly found yourself unemployed?
Do you have enough money saved to pay your rent and basic living costs until you find a new job?
It’s a frightening thought but a lot less scary if you can cover your expenses for a while in this event.
Many financial experts recommend having at least 2 – 3 months worth of savings to help you through losing a job!
Prepare for future life changes
One point that keeps recurring in this article is the uncertainty of life.
These are not always necessarily bad things and saving can help you prepare for a number of changes in circumstances.
Having a child, for example, is a whole lot easier if you can afford all the extra expenses.
Financial security to pursue your dreams
One awesome benefit to saving money is the freedom to chase you dreams!
What do you really want to do with your life?
With money in the bank you might just be able to reduce your hours at work and start your own business. That’s exactly what I used my savings for.
I worked part-time while starting my own company and eventually I was comfortable in quitting my job altogether as I always had some money to fall back on if things didn’t work out.
Your dream may be to travel the world for a while without having to work. As soon as you start saving you can really start to dream for that once in a lifetime trip.
Big life purchases
You might think affording a house or paying for your education seems way out of your current budget.
Well, it always will be if you don’t start saving now.
Even the deposit to buy a house is going to cost five figures.
But with a regular commitment to saving money you’ll be surprised at how quickly you rack up enough to make that big life purchase.
Reduce the risk of debt
Being able to pay for things upfront is always more cost effective than using credit or loaning money.
It might be tempting to purchase things including furnichure, cars and other expensive items on credit.
Somehow feels better receiving a product immediately and paying it off a little each month.
But in the long run, it will cost you a LOT more money. Sometimes 10’s if not 100’s of percent more.
With a little patience and saving money, you will eliminate expensive debts and be better off financially.
Disadvantages of Saving Money
It’s hard to pick out many disadvantages of saving money off the top of your head. Before you commit to stashing money away be sure that you can comfortably live with the negatives. Some disadvantages will be simple life sacrifices, others are hidden financial impacts you might not realize.
It’s better to pay off debt than save money
If you’re trying to put yourself in a better financial situation it’s very tempting to ignore your debts and save money, that way at least your bank account is growing.
It is in fact better to pay off your credit card debts and loans before saving money. The reason for this is simple. Borrowing money is expensive.
Let’s say you have £1000 in savings and £1000 in debt. It is highly likely that the debt is costing more money than the savings is making you.
A saving account may have a rate of interest of 1% while a credit card debit is nearer to 30%.
From your £1000 in savings for a year would gain you £10.
On your £1000 credit card debt over a year it would cost you £300.
Your debt is now £1300 (and growing quicker) while your savings is at £1010.
You’ve lost £290 by not paying off your debt with savings.
You’ll have less nice stuff
The hardest part about saving money is the temptation.
To save money you’ll have to sacrifice buying new things and live with what you’ve got, in the short term at least.
It might be hard at first, but I’ve found that you learn to love what you already own and cherish items a lot more when you can finally afford them.
Plus don’t forget, making sacrifices now will hopefully lead to the benefits of more wealth in the future. It’s short term pain for long term gain.
Changes in your social life
One of the quickest ways to cut expenses and save money is changing your social life.
To be honest, this doesn’t have to be a bad thing.
Reducing the amount of money you spend eating out and drinking in bars might feel like you are missing out.
It doesn’t mean you have to sit at home with FOMO scrolling social media though.
You can quite easily find something else to do, another hobby that doesn’t cost much money.
Taking up a sport is my go-to for this change in life. You can fill hours of your time and socialize without running up huge bar tabs.
Plus the exercise is good for you – two birds with one stone.
Saving money makes you less wealthy
This point is a little more complex but still important to understand.
Saving money is great for a number of reasons mentioned above and you should always have a fund for emergency expenses.
If you are looking to save money to increase your overall wealth then you should understand something.
Interest rates on cash savings accounts don’t always keep up with inflation rates.
What does this mean for your money?
Well simply, the money you hold in your savings today could in the future be worth less in overall buying power in the future.
That’s right, saving money can make you less wealthy. Crazy huh.
If you’ve got a decent amount of money saved you should look at ways to invest your savings to grow your personal wealth.
Advantages and Disadvantages of Personal Savings – The Bottom Line
There you have it, a full round up of the advantages and disadvantages of saving money.
If you were keeping score then it’s 7 – 4 to the advantages.
Of course, your situation is unique and you should take a full look at your personal savings, debts, and financial situation while making a savings plan.
Keeping a nest egg of money to one side for emergencies is always important so you are not left needing to borrow money for unforeseen expenses. When saving for larger purchases and luxuries you should also take into account your debts and think about paying them off first.
Have you found any more positives or negatives to saving money? Let us know in the comments below to help others.