When they say "save money for a rainy day," what do they mean exactly? Here are 5 ways your rainy day might come.
Try to save a bit of money, and everyone thinks you’re Uncle Scrooge. But what seems like cheapskate behaviour can be profound financial wisdom. Forget about saving up to buy the next Urban Decay palette or gaming rig--there are the real reasons why scrimping can be a life-saving idea:
1. You May Not Be the One Who Needs the Money
One of the things you discover as you grow older (particularly as you enter your early 30s) is that your savings don’t just provide for yourself. As your parents are older, they will come to rely more on you to help out with household expenses--and of course, you have to consider what happens when your parents finally retire. There is a high chance you may need to use your savings to help out, even if it’s just to top up their CPF.
You might also want to consider how you will react if friends and relatives seek financial assistance from you. One of the things we keep repeating at SingSaver.com.sg, with regard to these kinds of loans, is that you should only agree to lend money you are prepared to lose. Having savings means you can afford to do just that.
We’re not saying you have to be responsible for the finances of your loved ones--just that having savings means you’ll at least have the option to help.
2. Even if You’re Insured, Consider What Happens After Treatment
We assume you have some form of health insurance (and if not, please go get it right away). While this will cover the cost of treatment, many people forget to think about the aftermath. Often ignored factors are:
- The cost of further treatment sessions, such as having to visit a physiotherapist or specialist repeatedly for the next year.
- The cost of being unable to work. If you are a baggage handler but your injury leaves you wheelchair bound for six months, do you have enough to savings to live off?
- Cost of non-hospital services. This includes things like paying someone to look after your children while you are hospitalised, getting someone to look after your pets, etc. If you live alone, this is an important consideration.
Look beyond hospital bills when anticipating the cost of medical emergencies. In a worst case scenario, you can always get a personal loan to pay for medical bills, but it's better to have cash at hand for it.
3. It Helps When You Need to Change Jobs
Whether you are voluntarily leaving your job or choosing to pursue something more meaningful, savings are your safety net.
You should always assume you’ll need a period of at least three months to find a job. You will probably still have to pay the rent, and other bills, during this time. One month’s severance pay (typical of many retrenchment packages) will seldom suffice, especially if you have been living pay cheque to pay cheque.
Beyond protection from retirement, you should also consider opportunity. If you have at least six months worth of your income as savings, you can confidently leave to pursue better opportunities. If you have no savings, you are too dependent on your employer for you to up and leave.
4. Home Repairs are Expensive and Often Urgent
Home repairs are one of the major reasons people resort to credit. What will you do if your one toilet chokes up? How are you going to cook and clean if the kitchen pipes are busted? What if the refrigerator breaks, and you have a month’s worth of fresh groceries in it?
Many people don’t realise how painfully inconvenient it is when a basic home amenity (e.g. the ability to take warm showers) is lost. The price of home repairs--especially if you want a repairman to come in and fix something at ten o’clock at night--can range into the thousands. Since it’s also hard to get a personal loan on short notice, you will probably end up using a credit card.
A S$1,500 bill for plumbing is not an amount you want rolling over on your credit card, given the high 24% per annum interest rate. If you have reasonable savings, you won’t have to.
5. What Happens if Your Work Tools Break?
What will happen if the laptop you need for work breaks down? What if, due to a bill processing problem, you no longer have access to software you subscribe to for graphic design, accounting, simulations, etc.?
This is more of a concern to freelancers and other self-employed individuals. Unless your client is nice enough to provide you with spare equipment, you may find yourself buying on credit just to keep your work up.
Part of the reason you save is to provide for these emergencies--when you live paycheque to paycheque, even a minor problem like a broken laptop can hinder your work for weeks.
Read This Next:
How to Overcome Credit Card Debt and Save at the Same Time
5 Emergency Expenses You’re Probably Not Prepared For