Reviewed by Sep 30, 2020| Updated on
Savings represents an individual’s unspent earnings. It is the amount that remains after meeting the household and other personal expenses over a given period, for example, on a monthly basis.
Savings is the balance that remains after meeting of the consumption needs of an individual. People who buy on credit and have incremental EMI commitments would have little or none to save on a monthly basis. Savings help in pooling up funds for the future.
Savings can be as simple as keeping aside money on a monthly basis or even investing small amounts on a monthly basis. Savings can help in meeting financial commitments at a future date, for example, to buy a house.
Funds saved or set aside also enable an individual to stand against unforeseen emergencies. Such emergencies can arise at any time to an individual due to any reason, such as the COVID-19 pandemic spread as well as the lockdown.
For example, Ms Z’s monthly paycheck is Rs.4,000. Her expenses include an Rs.1,000 on rent payment, an Rs.400 car payment, an Rs.300 student loan payment, an Rs.100 credit card payment, Rs.150 for groceries, Rs.50 for utilities, Rs.25 for her cellphone and Rs.75 for gas.
Since her monthly income is Rs.5,000 and her monthly expenses are Rs.2,100, Ms Z has Rs.1,900 leftover. If Z saves her excess income, she has money to live on while resolving her problems in the case of an emergency.
If Z does not save her extra money and exceed her expenses over her income, it means she is living paycheck to paycheck. In the case of an emergency, she does not have money to meet her day-to-day expenses, bills, and emergency expenses.
Savings can be used to increase income by investing through different investment avenues or vehicles.