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Less than 40 percent of American adults have adequate savings to offset a $1,000 emergency. Living without savings is dangerous and often comes with consequences. Whether it’s a deliberate decision not to keep something for a rainy day or overspend whatever you get, you are risking a lot.
Picture a scenario where your car’s factory warranty is about to expire and you lack an emergency fund—not good. But if you had some savings, you would quickly purchase an extended car warranty after reading Endurance warranty reviews.
That said, savings is the cornerstone of financial stability. So, unless you develop a habit of saving money, you’ll experience a lot of financial struggles.
Below are the consequences of living without savings.
You’ll Be Unprepared for Financial Shocks
Most households have some sort of regular expenses they expect to pay every month. These may include food, housing, transportation, and other needs.
On the other hand, there are other expenses defined as financial shocks. While they occur less frequently, they can occur when you least expect them to. The following are common financial shocks that you are likely to encounter:
- You bring home less income than usual because of a salary cut, job loss, or reduced hours.
- You suffer an injury or sickness and need urgent medical intervention in a hospital.
- You become widowed or divorced from your spouse.
- Your car needs a major repair or part replacement.
- Your furnace breaks down in the dead of winter.
Without savings, just one financial shock can tip the scales of your entire financial well-being.
You’ll Drown in Debt
Ever started your month with the intention of spending money only on what you need—and then somewhere in the middle of the month, without knowing it, you find yourself spending money on things you didn’t intend to?
The problem with having a credit card is you live under the illusion that you can buy things even if you can’t afford them. Soon, you develop unnecessary spending habits such as eating out too often or overspending on the latest Gucci products. Eventually, you end up in a cycle of debt to cover any expense that crops up because you lack the savings for it.
Debt may also trigger emotional feelings like depression, stress, and anger. High-stress levels may lead to the deterioration of your physical health, leading to a high risk of high blood pressure, heart attack, headaches, and insomnia.
A good rule of thumb is to pay for things outright. If not, don’t use a credit card. To achieve this, you need to develop a habit of saving money. Otherwise, you may easily drown in ballooning debt.
No Vacations for You
Vacations are more than a moment of fun. They’re a necessity. Whether you want to ski in Colorado or sunbathe at a beach resort in Miami, it’s an opportunity for your body and mind to relax and refresh.
But when you lack savings, vacations appear nowhere in your schedule. You might think of funding your holiday using your credit card and paying for it later. But nothing will ruin your enjoyable holiday like the thought of having to pay for it later.
The more you use your credit card for vacation, the more you add to your debt burden. And the more credit card debt on your name, the less cash you have to fund for upcoming vacations. Thus, going into debt to fund your vacation is a bad idea.
Instead, set aside money well in advance that you can dip into to finance at least two vacation trips in a year.
You’ll Have No Investments
You’ve probably heard that you can’t save yourself to riches. Yes, the act of saving alone won’t make you wealthy. With the rising inflation, the value of your money drops when it sits around in a bank account.
Instead, wealth is the by-product of your investments. This means you have to invest your savings to get rich. Investment options include:
- The stock market
- Real estate
- Mutual funds
That said, you must first set aside money gradually before investing. That means saving precedes investment. For example, if you decide to spend every coin of your paycheck every month instead of banking some amount, you won’t have any money to invest.
Meanwhile, you can diversify your investments for better growth potential if you have a savings fund. A good rule is not to invest until you have a cash savings balance. When an emergency arises, you will use the cash to offset the expenses. That means you won’t have to dispose of your investment assets before they accrue compound interest.
You Can’t Help Others Around You
During tough economic times, one of the first places people seek help from is their family members and loved ones. But without some savings, you’ll definitely be unable to help yourself and your loved ones in need.
Choosing not to save also sets a bad financial example, especially to your kids and all those who look up to you. With enough savings to invest, you develop the financial capacity to pay for college tuition, medical expenses, and other needs of your loved ones. It is basically a tool to build generational wealth in your family tree.
The Bottom Line
Life without savings can be stressful. Whether it’s the debt cycle, the lack of investments, or the stress it puts you in, the lack of savings will affect the quality of your life one way or another.
Not every financial emergency has to turn your life into a crisis. When saving for a rainy day, the best rule is to set aside at least three to six months’ worth of your monthly expenses. The idea is to help you offset the expense of any financial shock that might pop up.
While saving money might seem daunting initially, setting a savings goal makes it easier. This way, you can review your spending habits and put aside a small amount every week or month toward your target.