💵 Guide to SAVINGS for BEGINNERS (what, why, how) | Finance from Scratch 💰

Summary

In this video, the host breaks down the essentials of saving money as a foundation of financial literacy. Covering the difference between saving and investing, the importance of building an emergency fund, and the strategies for improving your savings rate, the video offers practical tips on how to start saving. It highlights the psychological and financial benefits of saving, such as reduced stress and the flexibility to achieve long-term goals like financial freedom. The host also shares actionable steps to take, including setting up sinking funds and using high-interest savings accounts to grow wealth efficiently.

Takeaways

• 😀 Saving is a fundamental building block in personal finance and a key to financial success, even though it may not seem as glamorous as investing.
• 😀 Savings refers to money set aside for future use, after subtracting personal expenses from income. It’s about managing your funds before spending.
• 😀 Savings is different from investing—savings is for short-term goals and emergencies, while investing is aimed at growing wealth for long-term goals.
• 😀 It's important to save first before investing, as you need a financial cushion (like an emergency fund) before taking risks with investments.
• 😀 A high savings rate is essential for achieving long-term goals like retirement. Aim for at least 15% of your income to be saved for retirement.
• 😀 Inflation makes savings in traditional bank accounts less valuable, so high-interest savings accounts (like GoTime with 5% interest) are a better option.
• 😀 To reduce financial stress, it's crucial to have savings set aside, especially for unpredictable income or irregular expenses.
• 😀 Savings provide the flexibility and security to make decisions without money dictating your choices, like quitting a job you don't like.
• 😀 Increasing your savings rate can be achieved by reducing expenses, increasing income, and minimizing lifestyle inflation.
• 😀 Actionable steps to start saving include determining your personal 'why,' tracking expenses, budgeting, and practicing intentional spending.
• 😀 Sinking funds allow for intentional saving towards specific goals, like buying a new phone, vacation, or emergency fund, and can be managed with savings accounts.

Q & A

What is the basic definition of saving according to the video?

Saving is the money you set aside or have left over from any source of income after your spending. In simple terms: you earn, you spend, and whatever is not spent and is intentionally kept for later is your savings.

How is saving different from investing?

Saving usually means keeping money in cash or cash equivalents like a wallet, piggy bank, or savings account. The main goal is safety and liquidity for short-term goals and emergencies. Investing, on the other hand, is putting money into assets like stocks, bonds, real estate, or crypto with the intention of growing your wealth over the long term. Investing carries higher risk but aims for higher returns.

Why does the creator recommend saving before investing?

The creator recommends saving first because you can’t invest if you don’t have leftover funds, and you need a safety net. Having savings (like an emergency fund) helps protect you from financial disaster if your investments temporarily lose value or if unexpected expenses come up.

What is a savings rate and how is it calculated?

A savings rate is the percentage of your income that you keep instead of spending. It’s calculated as: (Income – Expenses) ÷ Income × 100. For example, if you earn 50,000 pesos and save 25,000 pesos, your savings rate is 50%.

How much of your income does the video suggest you should ideally save for retirement?

As a general guideline for retirement, the video mentions aiming to save at least 15% of your income. It also cites recommendations that increase with age—for example, saving 10–15% in your 20s, 15–20% in your 30s, and 25–35% in your early 40s, if possible.

What is the FIRE movement and how does it relate to savings rate?

The FIRE movement (Financial Independence, Retire Early) uses math and your savings rate to estimate how many years you need to keep working before you can retire. The higher your savings rate, the fewer years you need to work. For instance, a 20% savings rate might mean around 37 years of working, while a 40% savings rate might reduce that to about 22 years, based on example charts.

Why does the creator personally aim for a 70% savings rate?

The creator aims for a savings rate of around 70% because one of her goals is to be in a position to retire early, around age 30. For her, retirement doesn’t mean never working again, but having the freedom and flexibility to take breaks or choose work she truly wants to do without being controlled by money.

What are the main reasons given for why we should save?

The video highlights three main reasons: (1) To reduce financial stress and anxiety by having stability and predictability; (2) To move toward financial freedom so your decisions aren’t dictated only by money and you can afford to take risks or leave a bad job; and (3) Because savings are a raw material or building block that you need before investing, starting a business, or seizing new opportunities.

What is the difference between a regular savings account and a high-interest savings account in the context of the video?

A regular savings account in the Philippines often pays a very low interest rate (like around 0.0625% per year), while banks lend money out at much higher rates (for example 10–30% on loans). A high-interest savings account, like the one from GoTyme mentioned in the video, can pay around 5% per year. That higher rate helps your savings grow faster and better keep up with inflation compared to a regular savings account.

Why is inflation a problem if you only use a regular savings account?

If the interest rate on your savings is extremely low (for example 0.0625% per year) and inflation is higher than that, the real value or purchasing power of your money goes down over time. This means that if you leave money in a very low-interest account, inflation can slowly ‘eat away’ at what your money can buy.

What are ‘sinking funds’ and how do they help with intentional spending?

Sinking funds are small, dedicated savings pots for specific goals, like a new phone, a vacation, or concert tickets. Instead of hoping you’ll have money when the time comes, you proactively set aside a fixed amount each month (for example 1,000 pesos) for that goal. This makes your spending intentional and prevents sudden, unplanned hits to your finances.

What does ‘paying yourself first’ mean in the video?

‘Paying yourself first’ means treating saving and investing as non-negotiable items in your budget. You allocate money to savings and investments as soon as you receive your income—before spending on other wants—so that building your financial future is always prioritized.

How can tracking expenses help someone start saving?

Tracking every peso you spend helps you see where your money actually goes. Once you’re aware of your spending patterns, it becomes easier to create a budget, cut unnecessary expenses, and redirect more money toward savings. It’s a first step toward building the habit of saving consistently.

What does the creator mean by ‘buying things for life’?

‘Buying things for life’ means choosing to save up for higher-quality items that last longer instead of buying cheap items that break quickly and need constant replacement. In the long run, this can save money and supports more intentional, thoughtful spending.

What practical first steps does the video recommend after watching?

The video suggests three immediate steps: (1) Determine your personal ‘why’ for saving (short-term or long-term goals); (2) Start tracking every peso and then move into budgeting with a ‘pay yourself first’ mindset; and (3) Practice intentional spending—think in terms of time worked for each purchase, set up sinking funds, and align your spending with your priorities.