The Art of Saving Money

“Money is not about how much you earn, but it’s also about how much you save.”

General human tendency is to splurge when you have a huge sum in your account, for example think about how much you spend on your salary day or first week of your salary day and how much you spend on the last day of the month. Why does it happen that on the last week of every month your ability to spend money decreases? Or let’s say when it comes to going to a movie show you tend to book the most expensive seats but mostly you stop yourself from imagining while it comes to buying the most expensive flat in the town?

Let’s begin with the monthly salary thing. Have you noticed that towards the month end your “need” to buy a dress, or ordering food or riding Ola decreases while these needs are at priority when the month starts. We get all kinds of discounts pop ups in the beginning of the month which make us believe if we spend now, then it’s saving for us. The fact is that with money comes the unnecessary wishes which might not have long term effect or the wishes which can be curbed.  For all the impulsive shoppers, be it online shopping or the ones who think let me show my love to my near and dear ones by buying expensive gifts for them, the trick to reduce the impulse of spending when the salary comes, is once the salary gets credited to your account, immediately transfer this money to another account and lock the debit card of that account and make sure you don’t touch that card unless and until there is an emergency. For single account holder you might go for the following:

·         RD (Recurring deposit)

·         iWish (ICICI bank has this feature, for more details please check their official website)

·         Mutual Fund (Currently DSP Blackrock are the best in this)

The idea behind it is if you do not have money in your account, you won’t have that need to swipe your card and get the things you want at that point but after a few days you won’t even need them.

There should be 3 components of your earnings:

·         Money for monthly expenditure – This should be kept as loose cash. Kotak savings account provide the highest % in the market. Try keeping your loose cash there.

·         Money for short term need – iWish or RD or FD for less than 5 years would be beneficial for this need. You can liquidate the money as per your need.

·         Money for long term – PPF, FD for 5 years or mutual funds with lock in period for 3 years, or LIC.

The Mediclaim and LIC are for emergency situations. Since return rate for LIC is less than other saving schemes, it is advisable to use LIC only for Insurance purpose and not as a saving scheme.

The percentage split of your earning for all the above said three components would be according to your life stage and the way you see your life to be. Needless to say if you inherit real estate property and your need is to travel the world before you reach 30 years, your percentage of money for long term would be less. If you have liabilities currently for example ailing parents, your monthly expenditure percent would be more.

There is another part of saving – sure shot return vs high return or let’s say fd vs mutual fund. This will depend on your risk taking appetite. FD is for those who want sure return and don’t mind getting less return while mutual funds are for those who want high return and don’t mind losing the money that they have invested. It is advisable to invest in SIP or invest little amount every month as SIP so that the entire money doesn’t go for a toss.

Next comes trading or buying shares. Before moving into trading, let me tell you mutual fund is also a kind of trading, the only difference is that on your behalf an institute is doing that. Terms like bonds, debt, stocks, options are all part of the game called financial asset. Please wait for my next blog for these along with real estate investment and commodity (gold, silver) investment details.

Disclaimer: Investment schemes are personal choices. One rule applies everywhere - does'nt work in case of making investment strategies. So think before you take steps and don't blindly follow this blog.