I am 23 and have recently started working. I wish to create a financial plan and save money for various requirements. What should I keep in mind?
– N Dubey.
Saving money plays an important role by helping you achieve financial goals in a timely manner. Every month, you owe money to people – your landlord, the electricity company, the cellphone network provider, the grocer and so on.
You should include yourself in this list of people to whom you owe money. You owe money to your future self and you must pay him on priority. In short, you must settle priority expenses as well as save on priority before moving on to secondary and discretionary expenses. Here are some ideas to help you save more.
Save first, spend next: Use a recurring deposit with your bank or a mutual fund SIP to ensure a fixed amount is deducted every month from your bank account and invested accordingly for higher returns.
Make a realistic budget: It’ll help you to estimate your fixed and variable expenses. The budget can help you locate and reduce unnecessary expenses and save more money.
Plan your savings: Once you know how much money would be required every month to meet your expenses, you can make short- and long-term savings goals. Depending on your goal, you can invest the saved money in appropriate investment instrument.
Don’t just save – invest too! For short-term goals, use a recurring deposit or a liquid mutual fund. For long-term goals use a mutual fund SIP or PPF. Investing your saved money for higher returns will protect it from inflation impact, which on average can erode the value of money at a rate of 6-7% per annum.
Choose the right spending tool: While spending money, if you choose the right spending tool, it can increase savings in the form of discounts and cash backs. For example, some credit cards may offer you a 5% cashback on phone and electricity payments, while you get no benefit if you pay by cash.
Saving should be a continuous process: Saving should continue without breaks. Only continuous saving can help you build wealth in the long term. It’s important to review your saving strategy from time to time to accommodate changes in your lifestyle and increase in income.
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