It takes a lot of hard work, discipline and commitment to save money. But the urge to splurge can consume a significant part of our income. So it becomes important to have a financial plan that enforces regular savings and leaves less income in your hand to splurge. Saving regularly is a great practice that will keep your finances healthy today and help you meet your future needs. But simply saving a part of your monthly earning keeping it in a bank account isn’t going to make your money grow. You can do more with your saved money to make it grow at a faster rate.
Take a look at a few common saving mistakes you should avoid and let it grow to secure your future financial needs.
Not Having A Saving Plan At The Beginning Of The Month
You don’t have to save everything you earn. Rather, focus on saving a fixed amount at the start of every month – let’s say, 20% of your take-home pay. What you’re left with can be allocated to meet your fixed expenses, daily needs and entertainment spends. What you shouldn’t do is simply save the money left at the end of the month. This will be meagre and detrimental to your financial goals. No doubt it’s good to go see a movie or have a fine-dining experience once in a while to take your mind off the daily grind. However, discretionary spends should be a small part of your budget. To keep them at a minimum, make sure you save first at the start of the month and spend from what’s left. You can also automate your savings by directing your bank to auto-debit a fixed amount and put it in a recurring deposit or mutual fund at the beginning of every month. This will help you fall into a savings habit which will to control or establish a steady expense pattern.
Not Setting Realistic Saving Goals
Setting realistic goals are critical to your life and finances. Savings should not be at the cost of essential spends. For example, it wouldn’t be wise to save money by not servicing your vehicle or by avoiding buying health insurance. Those are essential spends. Without them, your finances could be pushed into great jeopardy if your vehicle breaks down or if you get hospitalised. Therefore, you should save mandatorily, but not at the cost of essential spending. You’ll have to find a balance between the two.
Saving A Lot But Not Investing Enough
Saving money in a regular savings account is a good habit, but doing just this is not enough. Ideally, as you save, your money should grow simultaneously to create wealth for your future financial stability. Based on income, age, risk profile and financial goals, identify the suitable investment instruments for yourself. You can also take help from a financial advisor. Recurring deposits and fixed deposits are good instruments, but the returns are high enough to beat inflation as compared to other investment instruments like mutual funds. If you can afford to take a risk, do not commit the mistake of avoiding mutual funds. Sometimes not taking any risk at all is also a risk. Mutual funds are an effective investment instrument when you are looking for high returns.
Buying Products On Sale
A lot of us purchase things on sale as it helps us enjoy discounted prices or to accumulate a product at low costs. The key is not to get swayed by the discounts. We must spend as per our needs and within our income. Going beyond our income, buying things on credit that can’t be repaid easily, buying things we don’t really need are damaging to our finances. Another thing you must remember is that sometimes stores initiate stock-clearance sales. You must be careful about the products you buy. Do not buy low-quality products on sale. While you may save money in the short term, you may have to burn much more cash in the long term.
It takes great effort to earn money. Go ahead and spend on things you like. But remember to keep a close watch on your spending habits. Don’t go overboard. Saving money is also very important to your finances. But just saving and no investments will not help you in the long run. Start analyzing ways in which you can make your savings grow. Take help from financial advisors. Fine-tune your saving strategy for a better tomorrow and never forget to live life king size, because you deserve it
The writer is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.