If you are living from paycheck to paycheck, the idea of saving may seem like a faraway plan. When you are left with a few hundred rupees at the end of each month, why bother? — But everyone has to start somewhere, and if you work at it, your financial situation may improve over time. Saving money is worth the effort, and over time, it gives you options, and the more you save, the easier it becomes to accumulate additional savings.
As millennials, we love spending on lifestyle and experiences, rather than saving for the future. The focus here is on living in the moment with indulgences, like getting the latest gadgets, or having the best labels in your wardrobe.
However, the high cost of living versus low salaries makes saving a necessity now. Extravagant life can be dangerous. We also need to understand how to save and invest so we can live comfortably in the future.
Understand the difference between needs and wants
Owning the latest gadgets or keeping up with the trends can hamper saving as it does take out a massive chunk of the income. Identifying what is needed versus what you think you need is key to your savings which is based on accumulating wealth for the future. To do this, you must have a clear goal of what you need to save for. A clear purpose helps you identify those critical areas that align with what you need. Only then you can develop a plan to achieve that goal.
One crucial element for successful saving is financial discipline. If the amount you spend is more than what you earn, then it becomes difficult to save. Irrespective of the amount you receive, discipline and effective action are required for you to save money. There is one simple method you can use to start saving today:
Create a saving plan
The primary purpose of creating a saving plan is to identify how much you can consistently set aside and stick to regularly. To effectively developing this plan, it helps if you have a clear goal for you to save. You could be saving up for a holiday, or for buying a car, but there needs to be a reason.
Now that you know your goals, it’s time to develop a plan. There are three steps to creating your plan:
- Identify how much you make periodically. Get a picture of how much money comes into your account from time to time. (Your salary or pocket money that you get on a weekly or a monthly basis.)
- Estimate your spends — This includes everything from household bills to the money you spend for leisure like movies, dining out, etc.
- Based on these, you need to draft the amount you would save. You can follow a popular finance saving rule — the 50/20/30 rule.
The 50/30/20 rule states that -
- 50% of the income should be kept aside for necessities like utility and household bills like rent, electricity and groceries.
- 30% of your income should go for leisure activities such as going out for dinner or watching movies, shopping, etc.
- 20% of your income should go for savings, which would include emergency funds, mutual funds, insurance, etc.
The 50/30/20 rule provides a clear strategy on how you can save without having to focus on budgeting always. Still, saving 20% can be a difficult task if the necessary expenses overshoot 50% of the income.
Start small and be consistent
A quick tip would be to start by saving 10% of your income and then start working it up higher. The higher your saving rate, the better it becomes for you to follow religiously. Depending on your specific goals set, your saving rate must be a realistic number for you to save long enough to achieve your goals.
You must document your plan so you can reference it from time to time. Small activities such as packing your lunch instead of ordering in can help you save a chunk of your income. You can watch and cut down your spending through minor activities that can accumulate over time. These decisions of cutting down on expenses will eventually help in the long run.
We’re all in different places with money. Start where you are now, and build on it to get to where you want to be. Knowing how to save is only a minor part of the process. Lifestyle changes and self-discipline make a significant difference in building a path towards financial independence.
