Let’s admit it; managing the financial life is a difficult task. It is your hard-earned money so you want to spend it in a way you want it, right? Also, budget is considered as a ‘deprivation’ without any fun. It feels good when every month you get salary in your bank account. However, your savings kitty does not get full in proportion to your earnings. Either you have too many expenses on your head or have no control on your spending habits.
Did you know, around 51% people across India made an unaffordable purchase last year? Perhaps, you could be one of them if you don’t act money-wise and start saving. The only way to save is to become disciplined because savings don’t happen on their own.
Here are 3 reasons why you must inculcate the habit of being a disciplined saver.
1. To meet life’s goals
Child’s education and marriage, own home, care for elderly parents and a comfortable retirement and vacations – you need money to turn your goals into reality. Not to mention, there are also daily household expenses and yearly vacations to take care of. You need to have a huge corpus to ensure a smooth ride through the financial journey.
You can start with creating a financial blueprint. Carefully list down your life’s milestones, financial goals, current expenses, income and assets & liabilities. This will give you an idea how much you need to save every month.
2. Create an emergency cushion
Surprises are great, but not the unpleasant ones. You never know you may lose your job or there is a medical surgery to take care of. May be your washing machine breaks down or a natural disaster like flood or earthquake damages your car. During such rainy days, an emergency fund will act as shock absorbers and help you to keep your expenses on track. It will ensure that you don’t take a loan, borrow from a friend or terminate your fixed deposits during unforeseen circumstances.
Generally, an emergency fund should be equivalent to 3 – 6 months of your living expenses. Create an emergency corpus by transferring a small amount of your savings every month to a separate savings account set up exclusively for this purpose.
3. Creating wealth
Wealth is the cumulative result of disciplined saving and spending approach. It is created by pooling small savings and compounding them over lifetime. When you become a disciplined and an early saver, you can use the power of compounding to create a huge corpus and financially secure your future.
Let’s understand how the power of compounding works. If you save Rs10,000 every month or Rs1,25,000 annually and invest it for 30 years, it will create a create a corpus (assuming 10% returns) of more than 2 crores for you!
You can also take the advantage of rupee cost averaging when you invest a fixed amount regularly over the period of time. It makes market fluctuations work for you by averaging the overall value of investment since you can buy more units of investment when the markets are declining and less units when market are rising. The chart shows how rupee cost averaging works:
To invest systematically and with discipline, you can consider investment tools like wealth plans from ICICI Prudential. These plans grow and protect your money by taking both compounding and rupee cost averaging in consideration. They help you to invest regularly with an amount as per your convenience and for a long period of time. Also, they tend to provide better returns than other investment options.
Remember, every penny saved is a penny earned. So, as soon as you receive your salary, first set aside a certain percentage towards savings. In fact, every tax refund, a salary bonus or an extra income you get, it should be saved.
Disciplined savings are very important when it comes to managing your money and meet financial goals in life. It is a skill that can easily be learned and it gets only better with practice. Once you get start, you will be happy to see how your savings grow.