Needs versus Wants
As a child it is very difficult to recognize the value of savings. Needs versus wants is a concept that is difficult to understand as an adult in many circumstances. The possibility to save money for the future is very difficult to understand for this age group. I have the money and I want to spend it now! Saving is essential to building your long-term wealth, and it is important to save early in life and often. Teaching needs versus wants creates a battle at home for many parents. A clear differentiation of teaching terms as needs, things that we can not live without such as water, food, shelter, clothes and medical care, versus wants, something that you would like but can live without such as toys, candy, video games, jewelry and movie tickets is the starting point in this path of knowledge. Of course this teaching moment will be challenging and will take a lot of time and patience for a parent with constant reminders of the difference of these terms depending on the circumstances.
Throughout your life, you will be faced with many decisions about saving and spending. Your goals can vary from smaller purchases such as a new smartphone to larger purchases, such as a car or a house to long-term savings for retirement and any unknowns. There are some life events that you can plan and save for, like higher education or starting a family, but it’s impossible to foresee unplanned expenses. That’s what makes saving important — so you’ll be prepared for any type of expense by having money set aside.
Saving allows you the freedom and flexibility to fulfill your goals and helps you develop good personal finance habits. These habits are taught sometimes first hand by a parent or grandparent.
. Chances are you will need funds for unexpected situations throughout your lifetime, good and bad. Here are some basic steps to get you started.
- Create a budget and stick to it. When you make a monthly budget, overestimate your expected costs. This way, you will likely end up with leftover funds, which can go right into savings.
- Pay yourself first. Determine a set amount of money to put away every month and treat it like any other bill. Put away part of every paycheck — ideally 10 to 12 percent — and watch your savings grow.
- Save wisely. Choose the right savings methods to match your goals, and make sure to do your research to find the best interest rates.
- Be ready for the unknown. Create an emergency fund with three to six months’ worth of living expenses in case unexpected costs arise.
- Set financial goals to keep you on track. Use SMART goals so you know exactly how much you want to save and how long it will take to get there. When you set clear goals, it’s a lot easier to track your progress.