Every one of us know that investing money is very important to achieve financial freedom in our life. Unfortunately, only few of us are able to save money and invest them. Some people are not able to save because of their over-spending habits and do not know how to save money from salary? Others, put off savings for later, prioritizing their immediate wants over future needs.
Young people often think that there is an entire lifetime ahead of them to save for retirement. They understand the importance of saving, but it is superseded by the desire for the instant gratification they get by spending money.
Traditionally, we Indians are consumers. Statistics from various Indian and Foreign sources revealed, India’s consumer spending increased to Rs 20274.01 Billion in the third quarter of 2019 from Rs 19744.38 Billion in the second quarter of 2019.
In a country of 1.3 billion citizens, where more than 20% live below the poverty line, this large consumer spend is quite high. We Indians, regardless of gender, age and income are preoccupied with acquisition of consumer goods- both durable and consumable.
- Paying yourself First:
The phrase “pay yourself first” has become increasingly popular in personal finance and investing circles. Instead of paying all your bills and expenses first and then saving whatever is left over, do the opposite. This phrase means automatically saving money from each paycheck first, before doing anything else.
Do not save what is left after spending; instead, spend what is left after saving.Warren Buffett
Just like a corporate give salary to their employees, you also need to pay yourself first. Pay atleast 10 % of your salary to yourself. Initially, it may be difficult to save 10% of your salary but the experience of unexpected expenses without any saving will be even more painful.
A penny saved is worth two pennies earned…after taxes.randy thurman
Advantage of paying yourself first
- Funds are available for investment:
Investing is very important to create wealth, but only a few people think about it. They all are busy thinking about how to pay their monthly bills and make ends meet.
When you switch to pay yourself first strategy, you have a much better chance to invest your money and reach your financial goal. You will have funds to invest them which will help you to create wealth in the long run.
- Teaches you how to prioritise your expenses.
When you start dedicating some portion of your earning to yourself, you much less money to live on. If you left with little money then you will cut your unnecessary expenses and spend your money in a more better way.
- Help in creating an emergency fund.
Future is unpredictable, there is no guarantee what will happen at the next moment and there is no guarantee that it will keep going forever the way it is going.
If you start saving paying yourself then you will able to create an emergency fund to meet any uncertainty in life. It is always advisable to keep atleast 3 -6 months of salary in an emergency fund to meet any unpredictable loss, especially job loss.
2. Budget Planning
Start making your monthly budget. Budget is a simple exercise to track your expenses. Tracking budget is important not only to identify mandatory and discretionary spends but also ensure that you don’t overspend.
A budget is a roadmap for where your hard-earned money will go so you can make your hard-earned income work for you. Creating a personalised budget is essential to developing the right spending habits, setting aside money in the long run and ensuring the money in your bank account goes where it needs.
3. Don’t forget to pay credit card bills:
To make an example, if you have six credit cards and you are delaying the payments, then you have to fork out close to Rs 5000 a month in late fees alone. However, if you save Rs 5000 a month and invest it in a safe instrument, which gives 8% return compounded annually, you will amass more than Rs 1 crore in just 35 years. Small things make a difference.
4. Invest in the right instruments:
If you want to achieve financial freedom then only saving money is not enough. You have to invest your saving in the right investment instruments which will help you to achieve your goal.
Due to the lack of financial awareness, most of us do not know how to save money, where to park our saving and how important is to invest early.
There are multiple investment options available to us. First of all, we need to make our financial plan and we have to choose which investment options are best suitable for our plan.