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Life is full of unpredictable obstacles and while many might be unavoidable, you can always prepare ahead and be ready for them. One effective way to prepare for life’s financial obstacles is to learn how to save money before you can figure out where to invest your money. In order to save money effectively and efficiently you need to know the various ways in which you can boost savings and manage your day-to-day expenses, even if your income remains unchanged.
Here is a detailed blog on the importance of saving money, tips on how to save money, and the different ways to save money to help secure your financial future.
The Importance of Saving Money
Before we discuss how you can save money, it’s important to understand why saving money is importance. After all, when you are young your income might be low, so spending on necessities and a few luxuries like a high-end mobile phone might seem like a better option than saving for the future. But, that’s not the correct option and here’s 4 key reasons why it is important to save money:
- Saving money helps you maintain a contingency fund for emergencies like unexpected medical emergencies or costly repairs for your house or car.
- By saving money you can plan for future expenses like children’s higher education, buying a house, a new car, etc. with no or minimal debt
- Your savings can allow you generate passive income through investments that grow over time and help secure your financial future for golden years
- Helps provide peace of mind as you know you are well-prepared to face any financial challenges that the future might bring
Apart from the 4 reasons to save money mentioned above, you can have other reasons to save money that are specific to you. Such reasons could be funding international travel expenses, opening your own business, financing to pursue a hobby or interest, etc. The bottom line is that reasons for saving money might vary but it is absolutely necessary for all individuals.
5 Tips on How to Save Money
Here are a few practices you can develop if you're thinking about what is the various way to save money and how to save money for future:
1. Spend Within Your Means
There is a simple formula to calculate your savings:
Money Saved = Money Earned – Money Spent
So, the money you save increases if you earn more while your spending remains unchanged or you spend less while earning the same as before. This seemingly simple thought might be difficult to implement though, unless you realize a simple truth. Live frugally and don’t try to spend beyond your means for any reason. After all, not everyone can realistically afford a high-end car like BMW or Mercedes unless they have the income to back it up.
2. Minimize Your Debts
Debts in the form of loans might be unavoidable in the case of big ticket expenses like residential property. But any debt be it a loan or outstanding credit card debt incurs interest charges which reduces your ability to save money. So you should avoid taking debts unless it is absolutely necessary. What’s more in case you have outstanding debt, reducing the debt burden will do wonders in boosting your savings and allow you to opt for different investment options in line with your financial goals.
3. Automate Your Savings
Many of us struggle with the question how to save money simply because we don’t plan our savings well. One way to overcome this is to automate your savings i.e. set up investments that automatically deduct money from your bank account on a specific date and add to your savings. Such transactions can easily be facilitated by setting up a recurring deposit account or a systematic investment plan in mutual funds. Doing this provides you with a dual benefit – regular addition to your savings and continuous wealth creation with growth of your savings.
4 Make a Budget
Making a budget helps you in 2 ways – you get a clear idea of your expenses and you can identify areas where you can reduce spends without impacting your lifestyle. By creating a budget, you might discover unnecessary spends like subscriptions to magazines, newspaper or streaming services that you longer need. After all, every little bit of expense you can reduce will only add to how much you can save.
5 Set Savings Goals and Priorities
Setting a savings goals that is specific and achievable can help you stay on the right track. However, you might be saving money for multiple goals at the same time and you might not have enough income to achieve all your goals simultaneously. This is where prioritizing is important. By setting a priority you know which goal you need to achieve first and plan your savings accordingly.
The Various Savings Schemes You Can Depend On
There are various options you can use to grow the money you have saved. Do remember that the ultimate goal of your savings is to ensure your financial security in the short and the long term. But you need to consider the financial goal you are seeking before choosing a saving option that works best for you.
The below table summarizes some popular saving schemes in India and the type of goal you can use these savings for:
Savings Scheme/Investment |
What’s It Suitable for? |
Savings Accounts |
· Daily expenses · Emergency Fund |
Recurring Deposit |
· Disciplined savings · Short-term financial goals |
Fixed Deposit |
· Capital Protection · Medium to Long-Term Financial goals |
Unit Linked Insurance Plans (ULIPs) |
· Long-Term Wealth Creation · Insurance Cover · Tax Savings |
Public Provident Fund |
· Retirement Planning · Long-term wealth creation · Tax Saving |
National Pension System |
· Post-retirement pension · Long-term wealth creation · Tax Savings |
The above list of options are just few among many that you can use to not just save money but also grow your wealth over the short, medium or long-term. Short-term investment goals are typically those that you want to achieve in less than 3 years, medium term goals are ones that need to achieved in 3-5 years, while long-term goals are those that should be achieved in over 5 years. So knowing how soon you need to reach your financial goal can help you plan your savings and choose your investments accordingly.
For instance because of the long lock-in period, Public Provident Fund and NPS are best suited as long term investments just like Unit Linked Insurance Plans (ULIPs). Whereas, fixed deposit and recurring deposit are more suitable for medium and short-term investment due to guaranteed returns and flexible investment tenure.
Frequently Asked Questions (FAQs)
1. What are some additional tips to save money?
Some other things you can keep in mind should include making tax saving investments, investing in authentic products, and being vigilant of discount codes and coupons, etc.
2. How to Save Money From Salary?
Here are some key pointers to bear in mind if you want to know how to save money from salary, and they include creating a monthly spending plan, keeping a check on your monthly spending, saving and investing using the proper savings method, avoiding debts, saving any raises or incentives you receive, make tax saving investments to save income tax, etc. There are many more things you can do to save money.
3. Are there savings schemes to help us save money?
Yes, there are indeed several ways to save money via investment options. These include guaranteed return scheme like Fixed Deposit, Recurring Deposit, Public Provident Fund as well as market-linked investments like National Pension System and mutual funds.
4. Are there any online tools that can help save money?
There are currently numerous online tools and mobile phone apps that you can use to create a personal budget and/or track your expenses so that you can save more money. Many of these apps are available for free and are quite easy to use.
5. Why is it important to save money?
It is important to have a proper savings plan as it helps us overcome financial emergencies and uncertainties with ease and also help us plan for our financial future better.
Sources:
https://www.forbes.com/advisor/in/personal-finance/how-to-save-more-money/
https://www.kotak.com/en/stories-in-focus/how-to-save-money.html
https://www.hdfcbank.com/personal/resources/learning-centre/save/20-simple-ways-to-save-money-in-your-daily-life
https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=55
https://economictimes.indiatimes.com/wealth/invest/what-to-do-with-ppf-account-after-it-completes-15-years/articleshow/91513640.cms
https://www.india.gov.in/spotlight/national-pension-system-retirement-plan-all
https://www.businesstoday.in/impact-feature/story/explained-the-what-how-why-of-ulips-325227-2022-03-08
https://kuvera.in/blog/6-smart-ways-to-save-money-from-salary/
ARN No : Nov22/Bg/28
