Vast amounts of column inches are devoted to how to save and invest money. The question of why we do it is often not addressed.
Plenty of teens and people in their 20s see no reason to save. After all, they’re convinced they’re not going to grow old. Or they’re too badly in debt to see a way out of their financial quagmire. So why start?
There are also the people that believe genuinely that New Zealand Superannuation will always be there for them and they don’t need to save. It may be, but it’s a gamble to assume that it will be.
In reality we save for the good things in life. Those can be very different depending on your outlook. It may be to have nice consumer goods, to enjoy your retirement, or to see your children do well in life.
So why save and invest?
It’s human nature to hoard for the future. Our brains are programmed to store food and resources for the lean times and we get psychological satisfaction from doing so.
Having savings reduces stress. Knowing that we’ve got enough to tide ourselves over the metaphoric cold months is hugely important for human beings.
Savings bring freedom of choice. If you’ve got the resources to buy the things you need, you are not limited in where you buy them and how you buy them. It gives you the ability to negotiate. Savings and investments also give you the option to choose what you want to do in life. That could be start a business, have children, change careers, return to study, travel, and more.
Financial comfort in your dotage. Retirees sometimes find, for example, that the only way to see their grand-children is to travel overseas. New Zealand Superannuation is pitiful. Even if you’ve paid off your mortgage, can you imagine living on $339.92 after tax per week, or $522.96 for a couple? That might be enough for your food, utilities and basic living expenses, but not much more.
Saving relieves the pain of big expenses. We’re all hit with unexpected and sometimes large expenses from time to time. Imagine being one of those people who has to line up at WINZ for a grant every time your car breaks down? Saving a small percentage of your income, say 10% per month, soon adds up to a lot and it makes sudden expenses less stressful.
It’s a safety net. If you lose your job or your health, savings can help you live until your financial situation returns to normal.
It’s worth noting that saving and investing are two different things. Saving is the act of putting money away, perhaps in the bank or even under the mattress. Investing is taking those savings and buying assets that beat inflation or protect the capital, or both.