Financial management is an important part of a person’s life. While you may not like to sound materialistic, money does have a significant impact on your lifestyle. If you know how to manage your finances wisely, you will realize just how easy it is to stay out of trouble.
One of the foundations that will help you practice proper financial management relies on your saving habit. In fact, MyMoney.gov names it as one of the five principles that will help you manage and grow your money. Alongside earning, spending, borrowing and protecting money, saving is the key to help you take back control over your finances. You need to have this control for you to maximize the benefits that your hard earned money can give you. Not only that, if you want to be financially successful, you need to have an adequate amount of reserve fund to support whatever wealth you have built up for yourself.
How your life turns to chaos without a reserve fund
When you do not have any savings, the chances of your financial life turning for the worse is not unlikely to happen. Chaos is not far from happening – even if you make all the right choices in your life. You can use your credit card and pay the balance in full before the grace period and still be in danger of a financial crisis. You can implement your budget strictly and perfectly and still end up in debt.
The only way that you can really keep your financial life from turning into a crisis is when you have enough savings in your bank account. If not, here are some of the things that you could suffer from.
You will fall easily in debt. One of the main negative effects of not having any savings is you will easily fall into debt. Some people may be living within their means to stay out of debt but one emergency can ruin all of that. Even something as simple as the car breaking down or a medicine that you have buy could lead you into debt.
One small event can lead you to panic. When that emergency strikes, your lack of reserve fund can really push you towards the edge of panic. Regardless if the situation is big or small, it adds to the sense of helplessness that can really affect your ability to get out of that emergency situation.
You will be immersed in stress. When you know that you are not financially prepared for an emergency, you will always have that sense of dread at the back of your mind. That anxiety translates to stress which in turn could lead to a more serious illness. If you got yourself in debt, you can also suffer from debt stress which could be a real health threat to you.
The absence of an adequate saving fund will really take its toll on you and the security that you should be feeling about your future. Having your reserve fund stashed away just in case has the power to ease your stress and calm your nerves. In the long run, the stress free life is worth every sacrifice that you have to make just to grow your savings.
Use frugality to help you save
In some way, adapting a frugal life as you build up your savings can be really helpful. There are two important lessons that frugality will teach you which will contribute to your intention of growing your savings.
A frugal life is not about restrictions but more of knowing what expenses you want to prioritize and spend on compared to the others. Your budget will help you accomplish this. A frugal budget plan indicates the amount of money that you have coming in and the list of expenses that is financed through it. You can easily put the priority expenses on top of the list so it is always funded. For the variable and discretionary expenses, you get to decide which of them will be cut back on and spent on. That will help you enjoy the things that you want to spend on without going over your means. You can use this budget plan to ensure that you will have an amount put aside for your savings every time your paycheck comes in.
Here is a video that we created to help you make a budget that is realistic enough for you to follow. Sometimes, we make assumptions on our budget and we end up with something that is very restricting. That makes it difficult to implement in our lives.
The next lesson that frugality teaches you which will lead to the growth of your saving fund is smart spending. A frugal life is not about deprivation. However, it is all about stretching you money so it fits all your needs. For instance, it means baking your own bread so you can afford to buy the sweets that your children love to eat. It is skipping that weekly date to save enough for your annual vacation. An important concept of smart spending that people do not realize is saying no to purchases that is unnecessary – even if you can afford to buy it in cash. Through frugality, you will learn to recognize when to prefer saving over purchases.