The Importance of Saving Money

If you save ₹ 25 per day from the age of 20, by the time you are 75 you would save ₹ 5 lakh. If you saved ₹ 50 daily, this amount becomes ₹ 10 lakh.

None of us can predict the future. Saving money can help you become financially secure. You can use the safety net in case of an emergency. Begin your journey into the world of savings today.

What is saving?

• Saving is money that is not spent. It is as simple as that. Let us for example assume you earn ₹50,000 per month from all sources, including salary. If your expenses are ₹ 30,000 per month, your saving every month should be ₹ 50,000 minus ₹ 30,000 = ₹ 20,000. Saving can also be generated by reducing expenses. Taking the above example, if your income is ₹ 50,000 but your expenses have risen to ₹ 42,000, then your normal saving would be ₹ 8,000 a month.
• Now if you are able to reduce your spending by ₹ 6,000 i.e your expenses would drop to ₹ 36,000 and then your saving will grow to ₹ 14,000 a month.
• You can also argue that saving can be increased by boosting your income. True, you can save more by earning more. However, do remember that earning more is not an easy option. You can control your expenses easily, but increasing your salary is not in your hands. Only your boss/employer can give you a raise. You can do some part-time job or generate business income to increase income, but that will involve spending more time.

The importance of saving money

• “Do not save what is left after spending, instead spend what is left after saving”. This is a famous quote but very few people practice it in reality. Saving seems really difficult when compared to earnings. In this blog, you will learn about saving, the many ways you can save and about the different avenues for savings.
• All of us know the joy of getting salary. There is no feeling better in the world especially when your salary gets credited to your bank account. Once the money is in, unfortunately the race to finish it begins. By the end of the month, a few hundred rupees are left. This is how the average month of a middle class begins and ends.
• Saving used to be one of our economy’s strong points a few years ago. But, the massive wave of consumption has meant that savings is only an after-thought. The focus on spending has taken our eyes off savings. This needs to change.
• Since all of us put so much effort and hard work in our daily work, we appreciate income. Income allows us to fund our dreams, and take care of our immediate goals. But what if some expenses surely happen in the future? Do you wait till the future date to get the money or act now?
• Do remember that there is no guarantee that you will have income when you need the money, for instance, when your daughter is about to get married, or your family wants to go to Goa for a vacation. This is the fundamental reason why people save in the first place. Saving ensures money earned today is kept aside for tomorrow.

How to Save?

Suppose Mr X spent ₹ 5,000 at the restaurant after giving a treat to his colleagues. He was happy that he had got the much-awaited promotion. Spending ₹ 5,000 was easy. He just took out his debit card, swiped it on the card machine that the waiter had brought to the table and the transaction was done. If spending is so easy, can saving be simple too?

Yes, saving can be trouble-free if you know how to go about it. Below are 6 tips that will help you generate savings:

1. Establish your budget : Make a budget for every month on the last day of the previous month. For example, your budget plan for June must be made on the last day of May. Write down how much would be spent on restaurants, groceries, utilities, entertainment and personal care. Don’t wait for the end of the month to review. Instead, monitor how the plan is working weekly. This would help you to keep track of expenses and avoid spending more, resulting in savings.

2. Automatic savings : Setting up automatic savings is not just the easiest but also the most effective way. Ask your employer to deduct money and put into Voluntary Provident Fund (VPF). You can use Systematic Investment Plans (SIP) of mutual funds so that the cash is put out of sight and out of mind. Since there is no human intervention required, you are likely to forget after a while that automatic savings are happening

3. Budget with cash and envelopes : If you have trouble with spending, try the age-old system of envelope budget system. Divide the money into envelopes. This will automatically set a limit for almost all types of spending. Due to this system, you are less likely to overspend. Once you start practicing this system, you are likely to develop more self-control. This will help you save money.

4. Calculate purchases by hours : Want to buy something fancy or simply due to impulse? Take the price of the item you’re considering purchasing and divide it by your hourly wage. For example, if you earn ₹ 200 per hour (₹ 60,000 per month working for 10 hours a day), find out if the new smartphone costing ₹ 20,000 is worth 100 hours of your work. In this way, you can arrive at rational decisions.

5. No spend day per week : You spend every day. But do you earn every day? Salary or income comes once a month. To have a level-playing field, reserve one day a week when you will not spend any money. Do things at home. Stay indoors and save the money you would have spent if you were out with friends or family.

6. Unsubscribe from marketing/deal emails : The marketing emails from stores and outlets you spend the most money at can be tempting. They lure you to spend more. But an easy way to avoid it is by clicking on the unsubscribe link, usually found at the bottom of the email. The moment you unsubscribe from those emails, life becomes much easier. If you don’t get to know about deals, chances are high that you will spend less and save more.

Where to Save?

You have taken steps to curtail expenditure. Now, you want to save. There are different avenues where you can save money. Do remember that saving is not investing. In case of saving, you are more concerned about 100% principal protection rather than return.

Let us look at the 4 traditionally popular ways to save money.

1. Bank savings account : This type of a bank account helps you save your money regularly or in lump sum. The money saved in banks is quite safe. When saving, you can make cash deposits or transfer funds online to your account.

2. Small-saving schemes : The Government has floated a range of small-saving schemes to help small savers. National Savings Certificate (NSC), Kisan Vikas Patra (KVP) and other small-saving schemes are available. Like PF, these schemes are not very liquid, especially because they have a period when money cannot be withdrawn or transferred. Though small-saving schemes are popular, the restricted freedom to take out money whenever you want can be a big damper.

3. Provident fund : This is an example of forced saving. Provident Fund (PF) was designed for employee savings aimed at retirement. However, many people use PF to save money by asking employer to deduct extra money from their salary and transferring it to PF. Money in PF, however, cannot be easily taken out. Savings account of banks and post office are much easier to operate and liquid in comparison to PF.

4. Post office account : Apart from banks, many people save money in post office accounts. At least one transaction of deposit or withdrawal in three financial years is necessary to keep such post office savings account active.

Important Points to remember

• Try to save first and then spend.
• Create a budget and follow it diligently for the rest of the month.
• Save for emergency and for periods when there may be no income.
• Easier to control spending to boost savings.
• Use automatic saving route, switch to generic medicines and cash envelope system to limit spending.
• Use a combination of bank and post office savings accounts to save money regularly.
• Choose saving options that give you high liquidity and withdrawal convenience.

Thanks for reading the Article

Originally published at https://www.yourcaguide.com on June 5, 2022.