Saving money isn’t as simple as sticking it in a hole and forgetting about it. Saving money is about understanding the difference between what you need, now and in the future, versus what you want, and prioritizing according to that simple model. It’s about getting as much as you can out of your money.
By investing now in your future needs, you can be more efficient in the long run, and free up money for things you want now.
It used to be that most every person and family simply lived on the brink of utter ruin. Any expensive treatment for an illness or injury resulted in catastrophe. That isn’t something we worry about anymore because, unless you live in the third world, or the USA, you live under a system of universal state-sponsored healthcare.
Even with treatments covered, however, injuries and illness can make a huge dent in your income, and even leave you unable to work for long periods of time. It’s a possibility that can turn more cautious people into paranoid hoarders, fearing a sudden and expensive retirement.
Saving is about getting the most for you money and the longer it sits around, the more inflation does its magic, and the less you get out of it. The trade-off is traditionally to give up what you want in the present so that you can afford what you need in the future. This is an inefficient way to handle uncertainty, however.
Managing Risk Efficiently
Faced with the depreciation of savings, low trust in banks, and the burning desire to spend money, crafty people found another way. By crowd funding people who were kicked in the teeth by fate, in exchange for the assurance of similar assistance if they become the next victim, people can spend money at its peak value to take care of their own potential future needs. This is called insurance, and it is the best way to save money in the long term.
The largest benefit of it is that you can spend your income as you get it, and be secure in your future without hoarding money that may or may not be particularly valuable in the future.
The key here is to buy insurance that you need and can afford, and avoid the other stuff. Unless you live in Iceland, you don’t need to insure yourself against volcanic eruptions. What everyone should probably look at is:
- Life insurance: If you’re alive and anyone depends on you.
- Income protection insurance: If you have income.
- Total disability insurance: If you become disabled.
- Building and Contents insurance: If you live in a high risk area for crime and/or natural disasters.
- Health insurance: If you live in a place where you don’t already have it. Or maybe if you have serious needs and want private insurance you can talk to local health insurance specialists and let them talk your ear off.
Not Managing Risk
My first instinct, and a human instinct, is simply to assume both immortality and invulnerability, hope for the best, and refuse to spend money on anything that seems intangible. As a species of higher order thinkers, however, I like to think that every human being, with some effort, is capable of grasping the cost benefit ratio here. Nobody makes it through life unscathed, so do what humans do and prepare. AAMI.com.au
Image credit: Fill Your Money Box