Why you should keep saving, even when inflation is high!
Hello friends don't get me wrong I know it can be more appealing to be investing than saving, we all want our money to grow at higher rates than inflation. However, I can assure you that your future self will thank you for keeping up your savings habits when inflation rates go up.
While it's important to stay the course (remember Dollar Cost Averaging) on your investing goals, don't neglect your savings. Following are four reasons why a savings account is worth maintaining - even in tough times. If your monthly budget allows you to put aside a few dollars keep these tips in mind.
Because we can't predict when we might need an emergency fund, it's always a good idea to have one. When you do need it, you will definitely be grateful that you have it. Having an emergency fund is one of the most important short-term savings goals to pay attention to.
Every day we see our grocery bill, our fuel bill and ordinary expenses are going up, that's inflation and it's harder to stretch our dollars but is important to try and save even a little bit every month - maintain the habit. Your goal should be to start building a cushion that will cover one month’s expenses and then increase your savings to three months of your expenses. When times get tough use your emergency fund to cover your expenses, but plan to rebuild it again as soon as possible.
When you're looking at your investment account and all you see is spikes and valleys, your savings account can perform better than a typical investment account especially during times of high volatility. That savings account might bring you some peace of mind knowing it's less vulnerable to market volatility and more likely to hold its value. Inflation shocks can have many economic ripple effects, including market volatility, so your investments can change in value. By comparison, the money in your savings account won't go down until you withdraw it. Those saving's rates may be lower than inflation, but you can know that your savings won't unexpectedly drop in value.
The next benefit of a savings account is that your money is more accessible when you need it. These accounts are ideal for short-term financial goals, like saving up for a dream vacation or a home renovation. Money in a savings account is easily transferred or withdrawn on the day you choose to make a purchase. By contrast, money held in an investment account can take a few days to convert into cash.
And finally we know that high inflation is temporary but creating good financial habits can last a lifetime. We've all heard that the best time to plant a tree was several years ago, but the second-best time is today. Well, its the same with savings, starting years ago is better, but starting today is the second-best time.
If you create a savings habit during tough times, you're much more likely to continue into the future. Inflation won't last forever, but your new savings habit can contribute to setting you on a path to financial security.