Happy World Savings Day | 31st Oct

Are You Able To Make 30% Savings?

Introduction

Wish you all a very happy World Savings Day!! Amidst recent festive season, what used to strike in the media every day before you? The dominant message was “Spend”. There was almost nothing where the message was “Save”. Lets discuss few important saving thumb rules on the occasion of World Savings Day (31st October).

Happy World Savings Day | 31st October

World Savings Day is celebrated on 31st October all across the world in major developed markets/ developed economies, but in India it is celebrated on 30th October.

Here are 3 key thumb rules of savings :

1. Inculcate Habit of Saving

• People can inculcate the habit of saving and keep them motivated for more savings only when following 3 conditions are fulfilled :
  1. Regular investing, such as through an SIP (Systematic Investment Plan)
  2. An asset class having an upside potential and giving capital appreciation
  3. A sufficiently short lock-in period, whereby a young investor can look forward to actually reaping the rewards of self-denial
• It is the combination of all three that drives people to invest more after they start investing.
• Obviously people will found themselves having a higher awareness about their financial situation when they see their savings / investments growing.
• Because unless and until one start investing, he would spend a lot of money on useless small expenses or materialistic things that could well be avoided.

2. Start Early Saving & Investing

• Many people wait too long to start saving money and thus investing it. A late start for investing means you will spend years effortfully trying to build wealth you would otherwise have easily made. Thus, no strategy can beat the returns which could have been achieved with the early head start.
• The advantages of starting to invest early are exceptional. In most cases, you don’t have anyone depending on your income when you start earning. That is the best time to inculcate the habit of saving.
• You might want to spend the money you earn on products and services. But if you start your investments as early as possible and manage to invest even a small amount to begin with, you’ll see your savings grow substantially. It is only because of the power of compounding.
• Financial discipline and holding period of investment (time) are paramount to you achieving your financial goals.

3. Follow A Process Oriented Approach – Financial Planning

• Among the different types of investment classes, it may appear that the biggest problem is where to invest? But it is actually a secondary problem.
• The biggest problem is that the very large mass of people doesn’t save or doesn’t save enough. Whatever the people do save is without real awareness, without projecting into the future. Thus their investment approach might be without triggering the thought process that would lead them to save more and save better.
• One should allows follow a process oriented investment approach than a product oriented one. Before, going to start investing in random asset classes by referring their historical returns, one should analyze their financial goals, investment horizon, risk appetite etc. One should adopt a proper financial planning approach while starting investing.

50-30-20 Rule – Are You Able To Make 30% Savings?

Explaining 50-30-20 Rule

• 50-30-20 rule of budgeting can be explained as follows :
• 50% – Spending : Your needs or spending which should be limited to just 50% of your net income.
• 30% – Savings for Long-term goals : Your savings & Investments accounting for your Long-term goals, should be at least 30% of the money you earn each month.
• 20% – Wants or Short-term goals should only take up 20% of your budget and spending.

Elaborating 3 Components of 50-30-20 Rule

• 50% Spending :
  • Household Expenses
  • EMI or Rent (EMI should be maximum up to 30-35% of your monthly income)
  • Children Education Expenses
• 30% Savings & Investments for Long-term goals :
  • Retirement
  • Children Graduation and Post Graduation
  • Children Marriage
  • Any Other Need
• 20% Wants or Short-term goals :
  • Vacation
  • Down-payment for Home Loan
  • Car etc.