SAVING
In India there is a saying:
“To save Money for a Saint is a sin AND, to not save
Money for a family Man is a sin”
If one is completely out of debt saving is not an issue
and one must save regularly. However if one is in debt then one must make provision
for both. Pay the debt, as well as save a little. Staying out of debt is the
first step in building a healthy corpus.
Your Creative Energy is at the highest from the age of 15
to 40. These 25 years are what make your future. Since time is a very important factor in
saving so one can always start late only to retire later.
Why Save?
To provision for uncertainty. You must have kept aside for 3 months of your
expenses. That is the usual wisdom. However I recommend to have savings of
atleast 6 months. In case you lose a job it takes usually 3 to 4 months these
days to get a job. You should provision for yourself and your family for
minimum 6 months.
To create a healthy habit.
To build a Corpus to retire peacefully.
How much to save?
Either save a fixed amount or save a fixed percentage of
your income regularly, say monthly.
Ask yourself how much is it possible for you to save in
terms of Fixed Amount of Rupees, Rs. 500, Rs, 1000, Rs. 5000 etc or take a
percentage of the money you earn each month.
Say you earn Rs. 20,000 a month. You could start saving Rs. 500 monthly
which is 2.5% of your monthly income. As
your income grows you can save more by increasing the percentage to 5% of what
you earn.
How to start saving?
Best option is to start with RD’s (Recurring
Deposits). Most banks do not issue Rs.
500 RD’s and in such case you open an RD account at the local post office which
encourage small savings.
An important principle in saving is that you buy less.
Always ask yourself before buying something if you really
need it? So, rich people are rich not because they have more money, but because
they spend less. How much ever you earn, remember your expenses will always
outpace your income.
Another principle to increase your savings is not to
borrow.
In simple words stay out of debt.
If you keep healthy spending habits you won’t have to
take a credit card or any other such instrument which eventually will get you
into trouble. There will be periods in
life where your cash flow will get disturbed and then your loans will mess up
your savings completely.
Yet another principle in saving is to start as early
as possible
The earlier you start the more you are able to save over
time. How does time and compounding help will be explained in another article.
The Time factor is crucial to savings.
Now you might say, how I spend less if I want to buy a
car or a TV or some expensive item which is something you cannot pay in one
payment. First always ask yourself if
you really need it or a cheaper version will do? Can you buy a second hand
version for the time being? Secondly if you are applying to the bank for a
loan, make sure you have provision made for a year and a half of payments for
what you buy. For example you want to buy a car and your monthly installment is
Rs. 10,000. Make sure you have Rs. 180,000 in your bank account before you buy
the car. This is to save you the embarrassment of the bank calling you to pay
for the installment in case you lose your job or some other big expense crops
up. Once you default, your credit history is spoilt and you will find it more
difficult to take a loan in future.
This is where RD’s (Recurring Deposits) again come in
handy. Say you want to buy a TV that is costing Rs. 60,000. You can open up an
RD of Rs. 5000 for one year and buy the TV once money is accumulated.
Financial Wisdom: Take a loan only for creating an
asset.
Asset: Anything that brings you money
Liability: Anything that takes money away from you
