If you’re reading this, then I’m sure you are an individual who tries hard to earn and save more. For an average person, this basic mode or logic is inbuilt. What we do with our savings is a different story, some accumulate for the rainy days, some invest, some splurge, some pay-off debt, some spend wisely, some donate,.. the list is endless.
To keep it simple, I would say Savings is money left from our post tax income after paying up all the necessary expenses. There could some forced savings by way of retirement funds which never reaches our hand until we decide to withdraw.
A person at the start of his career drawing 300k per annum may be able to save just 10k per month after paying for his rent, transportation, groceries, entertainment etc. While a person who makes 1000k per annum may save 25k per month. So as income grows, ideally the savings should also increase. But we often get caught up in upgrading our lifestyles and improving our comforts thus all of a sudden find it difficult to save the bare minimum. From time to time, we do land up in certain emergencies that increases our outflow temporarily which cannot be avoided.
If you are in a position to save a certain amount per month, then you are doing good. It’s even better if your agressively saving or at least striving to increase the savings. It’s best when you invest all of the surplus.
At the start of my career, I could save at max 3 or 4k per month. All this money was kept in the savings account and I watched it grow. As it reached 5 digits, invariably some expense would come up and the corpus would be empty. With the yearly increase in income, the savings rate improved. Aggressively saving is just not enough, the next step is to invest in instruments that yield positive returns. The best way is to open an investment account with your bank and start investing in mutual funds.
So here is what I have learnt and what I do now
- Never try to accumulate and become rich, it never happens. Accumulate to build up just an emergency fund. If you’re single with no dependents, then even the emergency fund can be kept to a bare minimum, say enough to survive for 3 months.
- I was always fascinated to see money grow in my savings account. Instead open an investment account and watch it grow.
- Target to save certain % of income at hand. This could be say 20% at start of the career and increase it by 10% every year. I am currently at around 70%.
- Even a small amount like 5k a month should end up in the investment account at the earliest.
- Automate investments, that way money does not stay in our lazy hands.
- Set a stiff financial target that compliments forced saving. I have set mine here and it’s all automated. Hence that leaves only a small buffer for some unexpected expenses.
Saving is just a start, investing is key to building wealth. Your never late to start. Let me know how much you’re able to save and how do you invest?