A survey taken before the onset of the COVID-19 pandemic revealed that 21% of Americans aren’t saving money. Saving money takes commitment and making some sacrifices. But it’s important because savings protect you against unexpected expenses and help you build a more secure financial future. Let’s take a look at why you should start saving — or saving more — today.

Save for a Financial Emergency

The most important reason for saving money is to build up a fund in case of a financial emergency. A lost job, unexpected healthcare bills, an auto accident, a family emergency — these are just a few of the unforeseen events that can shatter your finances if you lack adequate savings. The common rule of thumb is that your emergency fund should have enough money in it to cover three to six months of your normal expenses. This amount will help you make it through many financial setbacks.

Save for Large Purchases

Building up your savings will also help you pay for large purchases, such as a new home or car. You may not realize that saving for a home down payment can have a big impact on your mortgage payments. If you can afford a 20% down payment, you’ll avoid paying for private mortgage insurance, which lenders require when the down payment is lower than 20%.

Given the cost of college these days, many parents also save for their children’s education. Setting up and funding a tax-advantaged qualified tuition plan, also known as a 529 savings plan, can help ensure your child’s college expenses will be covered.

Save for Other Reasons

Setting aside money every paycheck as saving also helps you avoid debt. If you have savings, you can use them to make purchases or to pay off credit card bills to avoid interest fees. Not living from paycheck to paycheck will give you a sense of financial freedom, which will help reduce both financial and mental health stress. Having built up a savings account also offers you greater flexibility. For example, it will provide a cushion if you want to change careers, making up for lost income when you switch industries or while you take courses or training programs.

Save for Retirement

Another leading reason for saving money is to have funds for retirement. Although you can deposit money in savings accounts or CD products, most people save for retirement by funding special retirement accounts, such as IRAs and 401(k)s. These accounts are investment accounts, so you do risk losing money in them, but they have the potential to yield higher returns. If your employer offers a retirement plan, you should contribute to it, especially if the employer matches your contributions.

Make a Savings Plan

No matter your income, you can take steps to maximize your savings to improve your financial health. Here are three basic ways to meet your savings goals:

  • Set aside money from each paycheck. Set up automatic contributions, such as an automatic transfer from your checking account to your savings account, or, if possible, set up a separate direct deposit link to your savings account and designate a portion of your paycheck to transfer funds to it.
  • Reduce your expenses. Find areas to cut back on your spending and deposit the extra money into your savings account. Focus on your bigger expenses, where you’re more likely to find simpler ways to make cuts.
  • Increase your income. Find a part-time job, freelance work, or other employment to make money for your savings account. Even if it’s a few dollars a week, your savings will add up.
Savings jars

Saving money doesn’t mean that you can’t have any fun. Make paying for splurges, vacations, and special events — such as birthday parties and anniversary dinners — part of your savings goals.

Take the Next Step

Saving money helps you build wealth and have funds to face financial challenges. Each year America Saves Week — starting on February 21 this year — reminds us of the importance of committing to setting aside money for savings. It’s the perfect time to assess your finances, set savings goals, and make a savings plan. Click here to learn how our savings accounts can help you meet your savings goals.