Remember kolos, those wooden saving boxes from primary school? The ones we used to keep our extra ₦5 and ₦10 notes. Well, they might be old-fashioned now, but saving definitely isn’t! But wait: what is saving, and why is it so important?
What is saving?
Saving is the act of setting money aside for future use. However, the exact amount you’ll keep depends on factors like income, debt and expenses. Saving money is a big deal and can help you make big purchases and build wealth.
In this article, we’ll discuss saving in detail — from the motives for saving money to the importance of saving. We’ll also share how much money you should save and give you a few tips for saving in Nigeria. Let’s begin!
What is the importance of saving?
Saving money is a great way to prepare for the future and an excellent practice if you’re concerned about your personal finance. And while it can help you deal with life’s emergencies, your savings can also help you become financially secure and make big purchases easier to manage.
There’s also wealth building. Keeping money aside — even if it’s just ₦10,000 monthly — can help you take advantage of investment opportunities (like the ones PiggyVest offers on Investify) and the power of compound interest.
What are the reasons for saving money?
Now that we’ve seen the importance of saving, let’s dive into why people save money.
The main reasons for saving money are:
- To build an emergency fund
- For future purchases or expenses
- For wealth-building
Knowing these reasons (or motives) can help you better plan your finances and make the most of whatever money you keep aside.
In addition to the reasons we’ve shared, it’s worth mentioning that some people save money to reduce financial stress, enjoy greater financial freedom and/or pursue their dreams and aspirations. The simple act of saving provides financial security and instils good financial habits and discipline to help you achieve a more prosperous and fulfilling future.
1. Saving to build an emergency fund
An emergency fund is a financial safety net, providing peace of mind and security during unexpected financial or economic crises. After all, life is pretty unpredictable, and emergencies like medical bills, car repairs, or unexpected job loss can strain your finances — even if your income is amazing.
An emergency fund should be at the top of your reasons for saving money, and experts recommend setting aside at least three to six months’ worth of living expenses in your emergency fund.
Of course, you’ll first need to determine your monthly expenses using a budget.
Your emergency fund should be easily accessible, typically in a savings account (or in your PiggyVest Flex Naira wallet), so you can access it quickly when needed. By having an emergency fund in place, you can weather financial storms and avoid falling into debt during challenging times.
2. Saving for future purchases or expenses
An emergency fund is crucial, but saving money isn’t all about preparing for emergencies — it’s also about achieving future financial goals. You can save for specific purchases or expenses, including a down payment on a home, a dream vacation, a new car, or your child’s education.
And it can even be for something romantic. Take Aderinsola Oluwafemi and Godwin Olatunde, who saved towards a trip to Ghana in 2022.
Setting aside money for future expenses allows you to plan and budget effectively, ensuring you have the funds available when needed. By saving consistently over time, you can achieve your financial objectives without resorting to borrowing, which can lead to debt and interest payments.
Thankfully, PiggyVest’s Target Savings feature is perfect for this situation. With it, you can save towards your goals individually or as a group and earn up to 8% per annum while you’re at it.
3. Saving for wealth-building
Another compelling reason to save money is for wealth building. You can invest your savings in various assets like stocks, bonds, real estate or retirement accounts to generate returns and build wealth over time.
However, the power of compound interest means that the sooner you start saving and investing, the more your money can grow over the years. In other words, you’ll be more likely to be the next Dangote (or even Elon Musk) if you start saving for wealth-building early in life.
How much money should you save?
There’s no universal answer to how much money you should save, but putting aside 20% of your income is an excellent practice. This method — called the 50/30/20 rule — is pretty effective and can help you build a saving habit if you’re struggling to save.
Implementing the 50/30/20 rule is super easy. All you need to do is to allocate 50% of your income to your needs and 30% to your wants. The remaining 20% should go into savings.
Still, there’s no reason you shouldn’t save more (or less) if possible. The most important thing is to ensure you identify your motives for saving, analyse your income and expenses and follow a plan that works for you.
Remember: it’s your money, and you’re in control.
You can learn more about setting money aside and analysing your finances by checking out our article on creating a budget. It’s a handy guide for Nigerians and perfect for individuals new to personal finance.
Now, here’s the critical part. Saving can seem super easy at first, but you’ll surely face temptations — regardless of how much you earn. And there’s also inflation! Your money’s no good if it keeps losing value, yes?
Want to hear our advice? Use PiggyVest! With features like Piggybank, Safelock and Target Savings, you can earn between 8% and 12.5% annual interest on your funds without worrying about safety or security.
There’s also Flex Dollar — perfect for savers who want to hedge their money against inflation by saving in Dollars. This plan also comes with an annual interest of up to 7% and is accessible to everyone using PiggyVest!
What is the difference between saving and investing?
We’ve mentioned investing a few times in this article, so it’s only fitting that we end things by differentiating investing from saving.
Saving involves preserving money and meeting short-term financial needs with a focus on safety and liquidity. On the other hand, investing involves allocating money for long-term growth with the expectation of higher returns. However, it carries a higher risk and is less liquid than saving.
The best approach to your finances is to combine saving and investing — ensuring short-term stability and long-term growth. We recommend starting with saving (particularly building your emergency fund) before considering low-risk investment options and other opportunities.
Still, the best approach will depend on your financial goals, risk tolerance, income, location and time horizon.
Despite what most online grifters and scam artists might say, you’ll probably never make the most of your finances if you don’t learn the truth about core personal finance concepts like saving. After all, the first step to making money is to understand money.
The information we shared in this article is enough to start your saving journey, and we recommend using PiggyVest if you’re in the market for a simple, safe and secure way to save your Naira (or Dollars!).
The articles on the PiggyVest Blog are developed by seasoned writers who use original sources like authoritative websites, news articles and academic journals to perform in-depth research. An experienced editor fact-checks every piece before it is published to ensure you are always reading accurate, up-to-date and balanced content.
- FinFirst Blogs: Importance of saving money
- Econlib: Saving
- Britannica Money: Saving
- Central Bank of the Argentine Republic: What is Saving?