We have often heard of how saving money helps one tide over a temporary money crisis. It makes sense to save money – since your income drives the expenses in your life, any emergent costs would also be paid from your income itself. But if you live from salary to salary like most people do, it is often a tightrope walk when you balance all your finances every month.
Hence, setting a certain sum of money aside every month is a crucial exercise that can help you build a large savings fund for the future. You may choose to use the money in periodic intervals, by partially withdrawing funds for home expenses, children’s education or even to make payments on a home loan. Or you can choose to keep your savings undisturbed for a period of years, patiently nurturing it into a large nest egg for your future.
However, it takes gumption and discipline to save money regularly – and several people fail on this front. But if you are serious about taking control of your financial destiny, you need a plan that takes care of your future goals, lays out ground rules for getting there and also augments the money you currently have. This is a 3-step plan that you can follow on your way to financial freedom, and it goes thus:
Step 1: Create a monthly budget.
Creating a monthly budget for home and business expenses keeps unnecessary spending in check. Decide on a figure for your budget and adhere to it strictly. Within time, you will pare down unnecessary spends and realise that more of your income remains with you by the end of the month. Not following the budgeting system results in you spending your money indiscriminately and then waiting for the next pay check to arrive.
Step 2: List down your goals.
Making a list of your immediate and future financial goals helps you internalise key behaviours that you must adopt. It also helps you plan how much money you need to save every month to achieve your goals. For example, if you wish to buy a home in two years and require Rs X for the down payment, you must count backwards from that point and divide the sum by the number of months at your disposal. This figure helps you ascertain how much money you must set aside in your savings fund every month. It is a good idea to lock your savings in a bank account you don’t often access, to eliminate the temptation to dip into it sporadically.
Step 3: Invest your savings.
Merely letting your savings sit idle in the bank will not help you grow the funds appreciably. Instead, save a certain sum of money and invest in a savings plan. This plan is actually a savings fund that pays you back with a handsome amount of money when it matures. You cannot withdraw money on it before the tenure is up hence it steadily builds into a large sum. If you have inculcated a habit of regular savings, you can easily set aside the funds needed to make the payments on your savings plan. On maturity, you may either set up a new savings fund or use the plan money for your personal or professional needs