What is savings?
Saving is income not spent or deferred consumption. Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or cash. Consumer spending is what households spend to fulfill everyday needs. This private consumption includes both goods and services. Saving is closely related to physical investment, in that the former provides a source of funds for the latter.
Economics is divided on the role of savings. Many economists believe that saving is a personal virtue but social vice. This is because if all the people start saving, the expenditure will go down. Since the current system measures GDP and economic growth based on expenditure, a higher savings rate makes it appear like the economy is not growing. In fact, it may appear like the economy is about to enter a recession. On the other hand, many economists do acknowledge that this GDP-based view of savings is incorrect. They refer to unanimity in all of economic history. No country in the world has achieved economic prosperity without having a high savings rate. Right from the United States to China, any country that has reached the peak of global finance has been largely powered by its high savings rate.
Saving is setting aside a portion of current income for future use, or the flow of resources accumulated in this way over a given period. Saving may result in increases in bank deposits, purchases of securities, or increased cash holdings.
An economy where savings are meager means that the economy is choosing short-term consumption over long-term investment. To starve the economy of investment can lead to future bottlenecks and shortages. Higher savings can help finance more elevated levels of investment and boost productivity over the longer term.
There is also the paradox of savings –
“People save more when they think it’s a bad time to save and save less when it’s a good time to save.”
8 simple ways to save money by Bank of America
- Record your expenses: Figuring out how much you spend and Keeping track of all your expenses – Once you have your data, organize the numbers by categories, such as gas, groceries, and mortgage, and total each amount.
- Include saving in your budget: Your budget should show what your expenses are relative to your income so that you can plan your spending and limit overspending. Be sure to factor in expenses that occur regularly but not every month, such as car maintenance. Include a savings category in your budget and aim to save an amount that initially feels comfortable to you. Plan on eventually increasing your savings by up to 15 to 20 percent of your income.
- Find ways to cut spending: Identify nonessentials, such as entertainment and dining out, that you can spend less on. Look for ways to save on your fixed monthly expenses.
- Set savings goals: Start by thinking about what you might want to save for—both in the short term (one to three years) and the long term (four or more years). Then estimate how much money you’ll need and how long it might take you to save it.
- Common short-term goals: Emergency fund (three to nine months of living expenses), vacation, or down payment for a car.
- Common long-term goals: Down payment on a home or a remodeling project, your child’s education, or retirement.
- Determine your financial priorities: After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings.
- Pick the right tools: There are many savings and investment accounts suitable for short- and long-term goals.
- Make saving automatic: Almost all banks offer automated transfers between your checking and savings accounts. You can choose when, how much and where to transfer money or even split your direct deposit so that a portion of every paycheck goes directly into your savings account.
- Watch your savings grow: Review your budget and check your progress every month. That will help you not only stick to your personal savings plan but also identify and fix problems quickly.
Published 12/09/2022
By Ashley Jones
