Once you have started saving consistently (remember, putting money aside as soon as you get paid is a good way to make sure this happens) you should try to increase your saving rate.
There are three main benefits to increasing your saving rate:
- Your net worth and future income go up
Money won't make you happy, but it can stop you being unhappy a lot of the time. Having money saved up allows you to deal with unexpected problems more easily and provides peace of mind. I really realized this during the earthquake in Sendai in 2011.
Finally, if you invest some of it, you will receive an income that will grow along with your savings.
- You learn to live on less
Spending deliberately, being conscious of what is important to you, and living on less can make you happier (as you are concentrating on things that bring value to your life) and also means that you needs less -less income, a smaller pension- to live.
This will make a big difference to you being able to retire or take up an enjoyable job that doesn't pay all that well should you want to.
- You get a margin of safety
This is a big one. If you are regularly saving a significant amount of your income you have a safety margin built into your life. Unexpected expenses crop up all the time (medical costs, sudden trips, car or home repairs).
If you are spending 100% (or more!) of your income each month, how do you pay these inevitable bills? I used to put them on credit cards or borrow money from friends and family.
If you are saving though, you can use the money you were going to save instead, or your emergency cash fund (3-6 months' worth of living costs) instead of tapping investments or going into debt.
So, if you want to increase your peace of mind, enjoy life more, become more financially resistant, boost your future income, and retire earlier, all you have to do is start saving more every month.
If you aren't saving regularly, open a separate account and put 5,000 or 10,000 yen in there as soon as you get your paycheck every month. Once you see it building up, try increasing the amount little by little.
Are you a saver? How did you get started?