The right way to start saving early

A comprehensive study conducted by Assocham, which was released on the eve of ‘International Youth Day’, found that almost half the people who are between 18-35 spend more money on cosmetics, apparel and mobile phones rather than retirement savings.

The youth of today believe in following their passion which could be travel, shopping and partying. Millennials have been splurging their savings on experiences, luxury, technology and vacations, rather than planning a secure future.

One thing is clear. Borrowing to meet financial emergencies is the norm. A 2015 study done by LinkedIn on ‘The Affluent Millennial Opportunity’ showed 52% of millennials had a personal loan.

Gen X (born 1965-1980) enjoyed job security. Their goals were aligned towards buying a home, educating their children and saving for retirement. They believed in saving for a rainy day. With personal loans and credit cards easily available, today’s well-earning youth have access to quick easy money.

The credit card becomes a saviour in a financial emergency. Unfortunately, heavy dependence on borrowed money has led many youths to the debt trap. Repaying personal loans and credit card dues is a nightmare. Job-hoppers are now in search of steady jobs but the job market is tight. The threat of automation has given a real scare to the youth who can no longer afford to live on borrowed money. A tough job market gives no option but to save for a rainy day.

What must be understood is that the right time to start saving is from the first job. It’s even better to start at childhood and build on one’s pocket money. The saving habit cultivated at a young age is the path to riches.

Short-term saving goals are within 6-12 months and the best age, for anyone, to save is right now. A key goal is saving for an emergency fund. There must be 3-6 months of living expenses in that emergency fund.

Long-term saving goals are from 1-5 years and could be saving money for a car, down-payment for a house or building a retirement fund. Saving for long-term retirement goals should begin in the early 20s.

Saving can never be done with a hole in the pocket. Getting rid of debts is the first step towards saving. Pay off loans with high interest, and then move downwards, before even thinking of saving.

Save at least 40% of your monthly income. The bare minimum is a savings bank (SB) account, where interest is earned on the money deposited with the bank. Open a zero-balance SB account and look for competitive interest rates, bonus and promotional offers with zero or minimal fees.

Confusion exists on how a health insurance plan is of help. Premiums paid on a health insurance plan are a method of saving. On falling ill, thousands of rupees are spent on hospitalisation. With a health insurance plan, the insurer settles the hospital bills. A couple of lakhs could be saved on emergency hospitalisation.

Budgeting crucial

Cutting down on small expenses can save a lot of money, and this is where a budget helps. Budgeting is an important way of saving that should account for every rupee earned and every rupee spent. A simple excel sheet can help you keep track of monthly expenses and stop unnecessary spends.

Don’t ignore the power of small savings. Recurring deposits (RDs) encourage small regular savings each month that accumulate to a large amount. Compound interest earned is similar to fixed deposits (FDs).

Before shopping online, check for lucrative deals to enjoy huge discounts on a variety of products and services. Enjoy bargains at restaurants, gyms, malls and multiplex movie tickets. Shopping with a list curbs impulsive buying. Stick to the list and buy important things. The best way to control an impulsive purchase is to postpone. Follow the 30-day trick. Postpone an impulsive purchase by 30 days and if the need persists, make the purchase.

A simple trick to save money is walking. Walk from home to office and back to enjoy good physical and financial health. Walking at least 10,000 steps a day is a must for healthy living. With autos and taxis insanely priced these days, not to mention petrol bills of private vehicles, walking helps save money.

Automated savings like an ECS mandate to the bank for a Systematic Investment Plan (SIP), saves money. The money flows automatically to the mutual fund scheme and doesn’t allow easy withdrawals. This is just like a provident fund (PF) which encourages long-term savings. The employee’s salary is deducted each month and deposited in the PF account, and cannot be easily withdrawn.

Patience, smart planning, a budget, automated savings and postponing an impulsive purchase saves a lot of money.

(The writer is CEO and Founder, IndianMoney.com)

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The right way to start saving early

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