Saving for the sake of saving? Or with a goal in mind?

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From day traders to long-term investors. From highly defensive to highly aggressive investors. There are as many types of savers as there are investors. Some save for the sake of saving. Some save to make a certain purchase, such as an apartment, holiday or electric bike. Some believe they can't save. And some think there is no need to save at all.

The case for saving for saving's sake

Read this if you

  • only save for certain purposes
  • don't think it is necessary to save

Some people save to purchase a home, buy a new car, go on holiday or retire. This is a smart move (see below). However, putting money aside solely for a specific purpose may not be enough. It is a good idea to save spontaneously as well – to save for saving's sake, as it were. Why? Because saving for a specific purpose only makes sense in a world that is perfectly predictable. And we all know our world is not perfectly predictable. When an entrepreneur sets up a company, they draw up a business plan. This often includes an overview of the possible risks that could lead to the failure of their plan. Some risks are more prevalent than others: a recession, supply problems, more competition and so on. However, seasoned entrepreneurs will tell you that the real setbacks tend to be entirely unexpected. Burnout, a warehouse burning down, a partner who leaves you in the lurch, and so on. Not all plans go as you want them to. This also applies to our personal lives. Saving for saving's sake is like taking out insurance against any contingencies that could happen at the worst possible time. A water leak, burglary, redundancy or the like: you can plan for such risks and events to some extent. However, there are other setbacks you simply cannot prepare for in any way. They don't just occur unexpectedly; they also happen in a way you could never have imagined. By saving for saving's sake, you build a financial buffer that will help you meet unexpected challenges.

Generally speaking, it's good to have a reserve of 6 to 12 months' worth of net income as a contingency. These savings are simply there in case you ever need them. A financial cushion of 6 to 12 months' income is a good rule of thumb. However, there is no scientific formula that tells you exactly how much you should set aside. It all depends on your personal situation. If you have children, a car, your own home, an unstable income, limited insurance or similar, it is probably a good idea to have a more substantial buffer. The larger your cushion, the smaller the financial impact of any unexpected shock will be.

By the way: saving for saving's sake is useful for more than contingencies alone. There is another benefit in that extra savings are your ticket to freedom. Saving for saving's sake offers you options and the flexibility to wait and take action as and when an opportunity arises. It gives you time to think and time to choose the direction you want to take at your own pace. At an interest rate of roughly 1%, savings accounts offer a relatively low return compared to investments, but can still be very valuable. For instance, their instant access give you the flexibility to choose a job that pays less but is more satisfying or take advantage of an investment opportunity if one unexpectedly arises.

The case for saving for specific goals and projects

Read this if you only save for saving's sake

Saving for saving's sake is a valuable strategy to protect you against unforeseen circumstances and enable you to lead a more flexible life. However, saving for specific goals and projects also has a range of benefits.

First of all, it gives your financial planning a clearer direction. Perhaps you want to retire sooner or start working part time so you can focus more on your family or hobbies. By saving for specific goals, you can bring your financial life in line with your personal ambitions. If you know you are saving for something specific, such as a home or holiday, you can plan this in a targeted way.

It is also easier to focus on achieving a clearly defined goal rather than simply saving money in case you might need it. Defining where you want to go and what you need to get there makes it easier to navigate the (financial) uncertainties of life.

Saving for specific goals gives you the opportunity to achieve your dreams and ambitions and draw satisfaction from those achievements. Setting up your own company, buying a classic car, getting your scuba diving licence: you can make your dreams come true with specific savings goals. These goals help you to stay motivated and ultimately succeed.

An additional benefit of saving for specific purposes is that it may also contribute to your overall financial health. By deliberately saving for a large purchase rather than getting a loan for that purchase, you can strengthen your financial position.

Finally, having specific goals can encourage you to save in better way and be more aware of how you deal with money. It can prompt you to explore what savings you can make in our daily expenses to reach your savings target more quickly.

You too can save

Read this if you

  • think saving is impossible
  • want to save more
  • Saving is not necessarily about having more income. It can also help you to be more frugal and in control. Those who manage their money wisely don't necessarily have the highest incomes. They tend to be people who don't particularly care about what others think of them. You can also save money by spending less; you can spend less by wanting less, and you will want less if you are less concerned about what others think of you.
  • Combine both savings strategies. If you save for specific purposes and set aside a budget for contingencies as well, you will be better prepared for whatever the future may hold (or not).
  • Open a separate savings account. You can do this online and free of charge. A separate account makes it easier to monitor your progress. It also helps you to resist the temptation to spend the money on other things.
  • If you split a savings target into small steps, it becomes far easier, and you will be far more likely to succeed. For example, if you want to save 15,000 euros over a five-year period to go on a world trip, divide your goal into monthly 250-euro instalments or a weekly target of 58 euros. This makes your goal more manageable.
  • Try taking on a challenge, such as not spending anything on non-essential goods and services for a month or more. Once you get a taste for it, you can do the same thing on a regular basis.
  • At the start of the month, always pay 'yourself' first, for example with a standing order to your savings account. This also reduces the temptation to spend money.
  • And if you are considering buying something, wait a few days to see if you still think it’s a good idea – even if this is hard to do.
  • Draw up a budget, even if you hate budgeting for things.

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