Is saving a Luxury? You already have enough demands on your cash. With this why should you worry to save. 

Saving is often seen as a luxury. After all, don't we have enough immediate demands on our cash without having to worry about putting some aside for the future?

But saving should be a priority for two reasons. Firstly, you needemergency cash for those 'what ifs'. What if the washing machine explodes? What if you lose your job? Secondly, you need a nest egg for life's big expenses such as house deposits or weddings.

And once you get into the savings habit, it's surprising how quickly your funds build up and how secure it makes you feel. As Woody Allen remarked: 'Money is better than poverty, if only for financial reasons.'

The sums

Saving £100 a month over five years, based on net interest of 5% a year - if interest on savings accounts return to respectable levels once the recession has abated - mounts up to £6,962.30. Because you earn interest on your interest each year, returns are compounded and therefore better than you might expect. For example, save the same amount over 10 years and your savings rise to £15,848.14.

If you are saving for something specific, work out how much you need to put away each month to be able to afford it. Then save a little extra on top. This will ensure you can cope with inflation - if the cost of the car, home or holiday rises in the meantime, you will still be able to afford it.

If you are saving for emergencies you should aim to have a minimum of three months' net salary put aside. Six months would be better. If you can't afford this much, then save as much as you can afford.

                                                                                                                       --   courtesy - Alan O'Sullivan, April 2009