Singer Rihanna nearly went bankrupt after overspending and sued her financial advisor who responded: “Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?”. It seems that people do need to know ideas on how to save and invest more.
Inadequate savings forces people to chase high returns. They make not one but two mistakes of saving less and risking more. Need to remember that high savings create even higher wealth.
Here is our guide on how you can save more and hence invest more.
1. The 50/30/20 rule – include savings in your budget
50% of your income can be spent on needs, 30% on wants and 20% on savings. Needs are those that are required to survive. Food, transport to office, a reasonable amount for rent and clothes. These are unavoidable and cannot be restricted beyond a point. Wants are those fancy sunglasses or a new phone that you simply “must” have!! If your income is Rs 3,00,000, then spend Rs 1,50,000 on needs, Rs 90,000 on wants and Rs 60,000 on investments. The ratio should be reversed on the amount of income increase each year. If your income increases to Rs 3,30,000, then on the additional Rs 30,000, save 15,000 (50%), spend Rs 9,000 (30%) on needs and Rs 6,000 (20%) on wants.
2. Automate your investment
Have a separate savings bank account for your investment. At the beginning of the month, transfer amounts from your salary account to the investment account; most banks provide auto debit or swipe to transfer the money. Automate your investment from your investment account through a Systematic Investment Plan* (SIP). If any income is credited in your investment account, invest that.
3. Don’t automate your spending; digitise it
In the old days, people had to pay cash for everything. This meant that you have to count the money and pay it. People were forced to remember the value of money. These days, it’s just auto debit. If you are not even involved in the process of bill payments, how will you know the value of money? Don’t use auto debit for utility bills. You can set a monthly reminder on your phone to pay and pay digitally. This will help you be mindful of these expenses. Review recurring charges like memberships and subscriptions, especially if they renew automatically.
4. The 30-day rule
Avoid impulsive buying. When tempted by a non-essential purchase, postpone it for 30 days. If after 30 days you still feel like buying it, then go ahead. Most people realise that they can live without buying it. Same for online shopping for wants. Put it in your cart but don’t check out. Check out only once every few days. When you’ve added a bunch of items over days and then when you revisit your cart, you’ll find that you can remove some of them since that impulse is now gone.
5. Time your purchases
Time your non-essential purchases according to annual sale periods. Some apps let you set up alerts for price drops on things you want to purchase.
6. Don’t leave the cash gifts in envelopes
Deposit it in your investment account and invest it. All these earn and add up to a surprising amount over time. If you leave it in envelopes, you will either spend it or price increases will destroy its value.
7. Eat home as much as possible
Eating at home is easier on the pocket and better for health. That doesn’t mean you order food on Zomato and eat at home 😉
8. Invest more when you eat out
Whenever you eat out or order in, give yourself a tip and transfer some money to the investment account and invest it.
9. Don’t postpone debt payments
Whether on your credit card or loans – don’t delay any payments. Take on credit only those things that you can pay off on time.
10. See how much you have saved each month
This will inspire you to save more and find more ways to save. It’s important to not check the value of your investments every day; they are for the long term and may go up or down in the meantime.