Importance of Savings Explained in 10 Simple Steps

Why is saving important? From protecting you against any financial emergency to providing you with financial security post-retirement, a savings plan offers many benefits. You’re also able to achieve your financial goals on time.


When you face a financial emergency or find that you don’t have enough money to lead a comfortable retired life, you realize the importance of savings. The starting point for any savings plan is a budget since you know how much you spend every month.

Financial goals like higher education, buying a home, or your retirement plan become more expensive with inflation. When you start saving early and invest in the right financial assets, your investments grow and help you realize your financial goals on time. You can also handle crises like job losses or hospitalizations.

Savings vs Investment: What’s the Difference?

Savings and investments complement each other. When you start saving, you start investing. Your salary is transferred to your savings account, and the surplus can be invested after paying for your essential monthly expenses.

10 Reasons to Build Your Savings

The importance of saving money can be understood by these top 10 reasons:

1. Pursuing Your Dreams

With sufficient funds in your savings account, you don’t need to stay at a job that you hate. You can quit and pursue your dreams. Your financial goals will not be disrupted since you have a separate fund for your second career.

2. Long-Term Security

There is no such thing as job security today, and with a savings plan, it’s possible to overcome the temporary financial crisis that comes with a job loss.

3. Preparing for Emergencies

financial emergency strikes without warning, but with an emergency fund, you can focus on managing the crisis without worrying about money.

4. Paying for Education

College education today would cost you between INR70,000 and INR 150,000. The costs would also go up in the future, considering inflation. If you start saving and investing well in advance, you could comfortably fund your or your children’s education.

5. Lessening the Burden of Home Ownership

Wear and tear are common, whether it is remodelling your kitchen or replacing your air conditioner. With a savings plan, you can pay for these sudden costs without any hassles.

Plus, if you’re planning to buy a home 5 years from now, you need to start saving for a down payment. You would have to pay 20% of the property value, and the loan tenure would be 20 years.

6. Taking Advantage of Compound Interest

Long-term financial goals like a retirement plan need a long-term savings plan. If you have a 15-20-year timeline for your retirement, you can benefit from the power of compounding by investing in stocks and fighting inflation.

7. Affording Major Life Events

Major events like weddings don’t come cheap, but with the right savings plan, you can afford the grand wedding you want. Such events make you realize the importance of savings.

8. Funding Big Purchases

After every couple of years, your home appliances or car would need to be replaced, and your savings plan can be a lifesaver in such cases. Some affordable cars, like the Toyota fortuner , would cost you between RS35 Lakh to Rs 55Lakh .

9. Minimizing Financial Risk

The importance of savings can be realized when you want to start your own business and have sufficient funds to do that.

If you have, for example, a corpus of INR 6 million and need just INR 600,000 (10%) for your business, you can invest comfortably. The remaining funds will continue to earn interest.

10. Achieving Financial Independence

Having sufficient funds means financial freedom. You can start your own business, go on a well-deserved vacation, and value the importance of savings.

How Much Should You Invest and Save From Your Salary?

Here are some points to consider for an investment and savings plan:

  • Savings are the difference between your income and investment. They remain in your salary savings account after your monthly expenses are paid.
  • The funds left after your monthly expenses and contribution to the emergency fund comprise your disposable income. The savings that should be invested varies between 20% to 30% depending on your financial goals.

What Are Some Good Ways to Save Money?

Here are some smart tips that should be part of your savings plan:

Make a Monthly Budget

You recognize the importance of savings when you prepare a monthly budget since it helps you calculate your cash flows. It also kickstarts the habit of saving.

Eliminate Unnecessary Expenses

A monthly budget helps you analyze your current monthly expenses and cut unnecessary ones. When you start saving, you can start investing.

Avoid Credit Card Debt

When you overspend on your credit card, you disrupt your savings plan. With lower savings, you can’t invest enough for your financial goals. That’s when you know the importance of savings.

Save More and Live Better

The better your savings plan, the more you can invest. Your savings earn interest that is compounded, and you realize your financial goals faster. With a better life, the importance of savings becomes obvious.

Invest Wisely in the Best Savings Plans

Once you start saving, you should engage a financial planner to calculate how much you need to invest for your financial goals, like an emergency fund or a retirement plan.

Choose from mutual funds, ETFs, REITs, or commodities depending on your risk tolerance, the timeline for goals, and their future value.

Include Salary Hikes and Bonuses in Your Savings Plan

If you understand the importance of savings, you will consider salary hikes and bonuses in your savings plan as well. Higher savings will ensure greater financial security for you.

Avoid Penalties for Defaults

You start saving when you stop defaulting on your credit card dues or EMIs. Set reminders for your due dates and pay your bills on time.


When you’re financially comfortable and are able to realize your financial goals, you understand the importance of savings.

Though money kept in your savings account will earn interest, it’ll not be enough to beat inflation and meet your financial goals. So choose a savings plan to meet your financial goals and invest wisely.


‍Why is Saving Money Important for Students?

When students develop the habit of saving early in life, it helps them stay disciplined and improve their chances of achieving their financial goals.

Is it Smart to Have a Savings Account?

Yes, it is smart to have a savings account since it helps you in a financial emergency and realize your financial goals.

Why Is It Important to Pay Yourself First?

It’s important to pay yourself first since only when you have financial security can you help others in a crisis with your surplus funds.

Why is Saving Safer than Investing?

When it comes to short-term needs like an emergency fund, saving is safer than investing. A high-yield savings account protects your funds from volatility and helps overcome any financial emergency.

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