Practical approach to Saving and investing
It has been told time and again by financial experts and our elders that no matter how much one earns, your financial status is never sound and secure unless a part of your earning is saved and invested. In spite of these timely and repeated warnings, most people put off saving and investing to a later date thinking that they have all the time in the world.
However, this is very unwise because it becomes a habit that may never get corrected . Ideally, saving should start from the day you start earning and unless you discipline yourself to save a part of your income, it is likely that you will never be able to cultivate a healthy saving habit. And, it goes without saying that without saving, there is no investment and no financial security for your present and future. If you were to lose your job you would literally be on the streets without any savings to fall back on.
Here are some practical points that need to be considered while making any financial decision.
1. The difference between a dream and a goal.
The major difference between the two is that of clarity and affordability - Your goal should have a financial value and timeline. Once you see your goals clearly, setting a path to achieve it becomes much easier. However, one should be mindful of short-term to long-term goals. Goal setting is an important part of our life, be it with regard to education or buying a vehicle, taking a holiday or losing weight. Most of our goals can be achieved easily when we have the required financial stability.
It is also true that some of your goals might require recurring financial commitment in the form of saving for future and retirement benefits vs huge one time investments like for example education and marriage expenditure for children or building a home or buying a home for the family. Of course, one cannot hope to achieve all the goals at one go, so we need to prioritize or else our saving and investment plan will go haywire without producing the desired positive outcome or benefit.
Here a time tested and good old tip that comes in handy is listing out and making a note of all your goals. Once you know what your day-to-day expenditures ( monthly) are, you can start saving the remaining amount.
2. Tracking your savings and expenses.
It helps to make note of each and every penny spent and saved on a note book, a simple yet very powerful habit that is still recommended in spite of computers and other technologies. For those believing in being with the times in the digital age, we can practice this habit using online trackers. Products like money control portfolio keep you up to date about how your investments are creating wealth for you.
Online banking has advanced so much now that one need not visit at bank for day today dealings. It is the same with expenditure, unless you keep a strict watch and check on it, you will not be able to save much.
3. Be Patient and Consistent.
"No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant." This has been told by wise men time and again. In fact, patience is a virtue we need to develop especially in money matters.
India is poised to become an economic super power in next 10-20 years according to many experts and estimates, even if it is not , one can profit from the India growth story by staying invested for a long term. Those who dance-in and dance-out frequently in stock markets, may miss out on this opportunity , at the same time make sure that you book profits whenever you get an opportunity.
By being patient, we also realise that money doesn't grow overnight but allowed to grow. Always remember the power of compounding. It bears fruit with time.
Here I have a simple story to share – A school teacher retired in 1986 made it a point to save Rs 150 from her tiny pension on a regular basis, which she would put in Fixed Deposits after it grew to a sum Rs 6000 which was every 4 years. She kept reinvesting the fixed deposits every year as and when they matured and compounded. I was surprised to hear that her money after compounding and reinvesting has grown to nearly two lakh rupees now. So one can visualise how much one can hope to earn by saving say, Rs 1000 each month. Being consistent with your saving pays rich dividends
4. Careful investments.
"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." Another wise quote by a financial expert, which is worth analysing. Once you decide to start saving, the next important question is where to park these funds. Spending time in understanding your risk factor after carefully thinking through life goals and current financial state will determine your investment decisions both short term and long term.
This is an important area where people shy away from taking professional help and take financial decisions on what they call gut feeling, not realising the downside or the risk involved. Property is always a good investment since in most cities property prices move upwards because of the growing population and unending demand. Other than that , staying invested in Fixed deposits as I already wrote earlier can give you good returns.
5. Creating an Emergency Fund.
Life is uncertain and unexpected and we all know this but do we make any preparations and planning for emergencies where our finances are concerned. I have heard people say that although they earn a substantial salary, most of it goes on household expenditure , car loan, computer loan and so on which does not give them any room to save for the future and for their own security.
Most of these people don’t even have a proper or substantial Insurance coverage other than what is strictly necessary for tax saving purpose. Most financial experts are of the opinion that it is very important that not only you have a saving habit, it is even more important that your saving habit should be accompanied by basics of personal finance such as creating an emergency fund and proper insurance cover for both life and health.You can start right away since there is no better time like the present .
6. Make cash payments.
This was how people spent during old times and probably had some left over cash from their salaries . Making cash payments for all our day today purchases really helps in cutting down on unnecessary and impulsive expenditure. Using a debit or credit card has its own disadvantages because you tend to overspend thereby cutting down on your savings and investments. Withdrawing just the enough amount of money to carry you through the week can help you save more and as this practice becomes a habit, you will realise how easy it really is to save.
Conclusions:
Most of us have fixed incomes and we need to make it stretch so that it takes care of not only our basic needs but also provides for the future. What we need to really do is focus on those investments that generate dependable income rather than go for schemes that may never take off . So it is best to avoid anything that promises super natural future growth because one can never be sure whether it is for real.
When you are in doubt always get professional advice and guidance , since it is one of the best things you could do for a healthy growth of your finances. Setting a clear goal, starting early, knowing the risk and staying invested for long term are ageless advice which if followed like a habit can make a big difference in our lives.
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