No financial journey can begin without savings. It’s the most essential element of personal finance and the first step to becoming financially independent. Savings are often overshadowed by investments. But there are two things here that just don’t quite add up:
1) You can’t invest without saving
2) You need savings to balance the risks you take when you invest.
While there are endless ways to save, it’s not uncommon for people to not stick to their savings goals or try to save more than needed. Saving is more about spending on the right things than saving on everything. Wondering how you can start and maintain your saving goals? Have a look.
There’s no way you should begin by just saving money without knowing what you’re saving for. Be it for a new phone, a trip, or even moving jobs, jot down why you need to save. When you’re at this, don’t forget to bring down what your wants and needs are. For example, is getting a new phone a need or a want. If it’s the latter, how quickly do you need it?
Break down your savings into clear categories. You could have long term savings for things like buying a house or getting married, short term savings for purchases you’re planning on making in the next 6 months - 1 year, hobbies and leisure savings and so on.
When you decide your saving goals and needs, it declutters how you save and makes it easier for you to keep a track of what you’re saving for. It also builds anticipation as you get closer to your goal, making spending a happier experience.
Now that your saving goals are all figured out, it’s time to see how exactly you can save. While there are tons of saving plans and tips out there, first know how much of your income you’d need for your necessities like rent, transportation, groceries, etc. The simplest and most popular budget breakdown is the 50:30:20 rule. It basically means that 50% of your monthly in-hand income should go on spending for your necessities. Then, 30% can be spent on your wants, like eating out or taking a short trip, and 20% should go in your savings and investments. This rule is fairly simple and safe, but many younger earners try their own versions and try higher percentages for savings and investments. For people in their twenties, savings could increase by reducing costs of transport, housing, and finding a side income. For salaried professionals overall, it’s also good to look into national funds and schemes like EPF, PPF, and insurance to have long term savings and tax reductions.
This step can get tricky for newbies. There are multiple platforms for you to save and you need to know which one is going to suit you best. Ideally, you should know where to save for your long term goals and where to save for short term goals. But it really isn’t possible to find and stick to a platform for too long, so be open to changes as you move ahead. To start with, know what kind of personal savings accounts are good for you, what their interest rates are and what offers they bring for you. Popularly, people opt for short term savings in high yield accounts, Mutual funds and even stocks. For the long term, FDs and other safer investments seem like an option.
The choice of putting your savings in a place where it’s easily accessible has good returns and lesser risk falls completely with you. Just know that more nuanced options like high yield savings accounts or stocks take a few days before you can access the money. It’s ideal to keep an emergency fund which is way more accessible.
It’s normal for all this information to fly over your head initially. To break it down, there are different kinds of savings accounts, to begin with. These can range from having a minimum balance savings account to a zero balance account, salary savings account, to even a travel savings account and so much more. Have a look around and find a bank and an account that matches your goal. Personal finance, at the end of the day, is about your decisions about your money. It’s alright to take it slow, but make sure to make savings your first step into personal finance. And while you’re starting your saving journey, know that saving doesn’t always mean frugality. It’s great to DIY and go ahead, but know that there’s nothing wrong with spending on the things that matter.