Importance of saving for retirement


AS WE continue on our journey of developing a personal saving culture towards successful retirement, this week we will look at point number three: why people should save for their retirement. I have always said the future you create is the future you inhabit. Create the future you want through savings.
Investor Warren Buffet started saving at the age of 11. You do not need to own a degree to learn about saving culture. All you need is the drive to start saving and it works well when you start at a tender age as you stand to benefit from compound interest.
Do you know that you need six to eight months savings of your salary in cash just in case you lose your job or income? Yes, you need six to eight months income of your current salary. If you lose your job, you may end up becoming a social welfare issue. Have you been in a situation where you are just told that your bedroom back home has a leakage and it is during the rainy season and yet you have no cash in your savings account?
I have seen people struggling to replace their motor vehicle ignition key after it broke in an awkward position or in the middle of town because they do not have any emergency funds saved to meet such costs. Successful people are known by their story of personal savings. If you prepare for bad days, you will always have good days.
Establishing an emergency savings fund now can have a big pay-off later. Setting aside emergency savings can help you get by if your home or car needs urgent repairs, as well as in more serious situations such as an illness or unemployment.
Your emergency savings fund should be enough to cover your major expenses for six to eight months. If that seems daunting, you can always start by targeting three months of expenses and build from there. Here are some important expenses to consider when determining how much to save:
• Housing expenses: Your emergency fund should include savings for housing expenses such as rent or mortgage, property taxes, insurance and utilities. Protecting the value and integrity of your home is of utmost importance, so it’s a good idea to also include savings for emergency home repairs.
• Food: Estimate your monthly food expenses and include those costs in your emergency fund savings. Save money on food by reducing your food expenses and reduce on dining out.
• Transportation: If you have a vehicle, your emergency savings should cover necessary costs such as your car loan, auto insurance, basic maintenance, fuel and emergency repairs.
• Personal expenses: Costs related to personal supplies, haircuts, clothes and toiletries may seem generally inexpensive but can add up. Remember to include those items when figuring out how much to save for an emergency fund.
• Children’s school fees: Kids’ fees can be daunting if no savings are made for them and the worst is to let the children to be kicked out of school because parents cannot afford school fees. It’s traumatising to the children.
There are several things an individual can do to save money.
• Reducing expenditures that are not needed. For instance, an individual can stop eating out each day or buying unnecessary items. The money saved can be placed into a savings account each week. The account will continue to grow as you reduce unnecessary spending.
• Paying off debts using the snowball debt management method. Once debts are paid off, ensure that the money which was used to pay debts is transformed into savings immediately. If you can save for about two years thereafter, convert your savings into an investment account, which starts accruing interest.
There are many reasons an individual or family needs to plan for the unexpected. Medical emergencies, house repairs, auto repairs, and retirement are just a few of the reasons for having an emergency fund. At retirement, individuals will want to have enough savings to live comfortably. Social security will not offer one enough money to enjoy one’s retirement. However, if they start now preparing for that day, they can look forward to their retirement.
An emergency savings fund is essential for an individual’s health. Living in fear of financial insecurity for the future causes unnecessary stress. Stress can lead to many health issues, and consequently loss of income. Therefore, a savings fund can help eliminate the stress and allow an individual to live a more peaceful and comfortable life.
Remember, my desire is not to see you become completely destitute and financially broke, but retiring while smiling.
The author, a seasoned pension expert, is director for human resources and administration at Rural Electrification Authority.

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