Importance of Saving Money
“Don’t save what is left after spending; spend what is left after saving” is the advice given by the world’s most successful investor Warren Buffet. The importance of saving money cannot be overemphasised.
Saving is an excellent habit that you must inculcate early on in life to ensure your financial security.
Life is always throwing new challenges. While you cannot predict these, you can always prepare for them. Learning how to save money for any future contingencies is one of the best things you can do to ensure that you are able to tackle life’s many hurdles. Your savings can give you a sense of power and protection that can help you navigate through obstacles and emergencies and enjoy your life to the fullest.
Major reasons to save money include:
- To have an emergency fund to cover unexpected expenses such as a medical emergency or an unexpected expensive repair for your home or vehicle
- To have a retirement fund to take care of your day-to-day expenses after you retire
- To make investments that can earn an income that beats inflation
- To make a down payment for your home or other big purchases
- To pay for your children’s education and marriage
Besides the above, you can also find your reasons to save, but save you must!
How to save money
- Do not keep too much debt – Debt diminishes your savings. While you may get lump sum funds through a loan or a credit card, the high interest rates will erode your savings in the long run. Therefore, limiting your debt is crucial to save money
- Buy genuine products – A counterfeit or low-quality product may be inexpensive but would not last you as long as the original product. You may save money in the short term but would end up spending more on repair, maintenance, or repurchase in the long term. So, choose genuine products that offer a warranty
- Avoid spending money on outside food or entertainment purposes – Being mindful of your spending when you step out to eat or socialise is important. Many people end up losing track of their money when they go out. However, being conscious of your expenses can help you curb your spending
- Ask for discounts, coupon codes, and cash backs – Asking for discounts, coupon codes, or cash backs can be a great way to reduce your expenses. Many brands offer rewards and discounts from time to time. You can plan your purchases when the seller is offering a festive discount and cut your spending considerably
- Make saving a habit – Try to make saving a part of your life. Once it becomes a habit, you will no longer need to go out of your way to save money. You will automatically think about your financial future and the well-being of your family
Saving is crucial. This is much easier said than done. It is not uncommon for your short term happiness to override your long term goal of saving. To be able to save, you need to be firm with yourself.
Here are some steps to start saving:
- Estimate your current sources of income and the total amount of income.
- Set aside funds required to run your household and meet other necessary expenses.
- Earmark funds for expenses to be incurred on shopping, outings, and other activities.
- Mark the rest of your earnings as your monthly savings.
- Set a tight budget for yourself and operate within the budget at all times, barring a few unavoidable exceptions such as a medical emergency.
Once you have an exhaustive plan of your expenditure, you would be able to find out the amount of money left over for savings. This will give you an estimate on how much you can save every month.Then plan on deploying these savings in appropriate investment avenues.
Tips for saving money
Below are a few tips to save money not just for your short-term goals but also for the long-term goals:
- Tip #1 – Open a savings account – The best way to bring discipline in your savings habit is to open a separate account for your savings, apart from your regular salary or business account. Transfer the amount set aside for savings to this separate account. You can then invest in different savings instruments directly from this account
- Tip #2 – Allocate a budget – The most important thing when saving money is to exercise strong will power to not touch the money earmarked for savings. It’s possible that you may give up your resolve to save and utilise the funds for some unwarranted expenditure. Be wary of this. Stick to the budget and do not exceed it. Instead, make all efforts to try and save even from a tight budget
- Tip #3 – Evaluate your spending habits – Constantly evaluate your shopping and spending habits to take advantage of any extra savings possible. Make a conscious decision to set aside the amount saved. This will help to enlarge your savings kitty
- Tip #4 – Involve your family – Another good strategy is to involve your family members in your savings habit. You can also create a competition among your family members to see who would save the most every month
- Tip #5 – Invest in savings plans – Life insurance savings plans can help you save to take care of your needs and the needs of your family. They help in developing a regular saving habit and can give good returns. This keeps you financially prepared for any emergency
- Tip #6 – Set goals – Setting goals while saving money can help you save in a systematic manner. Goals can be either short-term or long-term:
- Short-term goals are events that you expect to happen in the near future. For example, buying a vehicle or going on a vacation. On the other hand, long-term goals are events that have a longer time horizon. Buying a house or planning for your retirement are usually considered as long-term goals
- Knowing your goals beforehand will help you identify the right plan to invest in. For example, if you are saving for a long-term goal like your child’s wedding, you can consider investing in a plan like ICICI Pru Guaranteed Income for Tomorrow. This plan provides guaranteed* returns that can help you achieve your long-term goals. It also provides a life cover` that can protect your loved ones financially in case of an unfortunate event
- Tip #7 – Automate your savings and investments – It is important to save and invest regularly in order to fulfil your short-term and long-term goals. The easiest way to do so is to automate savings and investments. This can be done by setting up a regular deduction from your bank account towards the choice of your savings and investment plans