Many people dream of becoming a millionaire and plan different ways to earn money. They try their best to save and invest money instead of keeping it idle or spending it.
Though savings is a well-known concept and almost every household in India saves money, the big question is – are people choosing the right financial instrument to grow their wealth? Sometimes, people let their income pile up in their salary or savings account, thinking that it will be helpful in case of any emergency.
In most cases, there won’t be an emergency as anticipated by them. The accumulated funds might tempt some to splurge on an automobile or some other expensive want. If only such people would have come up with a proper financial plan, that idle money might have grown considerably.
So, what are the ways to save money? Proper financial planning is the trick that can increase your savings every month.
Here are a few tips to increase monthly savings:
- Calculate your monthly income (including your spouse’s income, income from all sources)
- List down your monthly expenses
- Allocate 10% of your expenses for emergency (consider it as margin of safety)
- Invest the rest of the amount
Calculate your total income: Often, people never calculate their total income. They just look at the bank balance and plan their month accordingly. For instance, if a person gets Rs. 1 lakh as salary, they look at the total amount in their bank account, say Rs. 4 lakh, and plan expenses for Rs. 3.50 lakh and keep the rest as an ‘emergency amount’. This is not the proper way to calculate your total income.
Calculate your income for the month, your spouse’s income (provided the spouse is willing to allocate some money for the family), income from property if any, dividends (in case you have any investments), interest from savings/recurring/fixed deposit accounts and other sources.
The figure that you arrive at is your total income.
Monthly expenses: Now, calculate all your monthly expenses such as groceries, rent (in case of a rented house), provisions and all bills and loan repayments. You will be surprised to find out that you are spending some amount unnecessarily. By doing this simple calculation, you can cut down on your unwanted expenses and save more money.
Margin of safety: Instead of randomly allocating money for emergency purposes, allocate 10% of your expenses. For instance, if your expenses are Rs. 50,000 a month, allocate 10% of it – Rs. 5,000 – as your emergency expenses.
Invest money: For saving more money, you need to invest your money across various financial instruments. Once you set aside your expenses and emergency money, the rest is your savings and you can invest the whole amount.
If a person earns Rs. 1 lakh a month and their total expenses are Rs. 50,000, they can allocate 10% of their expenses as emergency money – Rs. 5,000 – and the balance Rs. 45,000 they could invest across various instruments.
Apart from opening a Recurring Deposit (RD) account and Fixed Deposit (FD) account in a bank, it is advisable to start an SIP (Systematic Investment Plan). In this case, the person can allocate Rs. 30,000 towards the SIP and the rest in other financial instruments. Investing in mutual funds has its advantages as there are different types of mutual fund schemes to cater to your diverse needs across different horizons.
Reach out to an expert today to draw out an investment plans that is better aligned with your age, financial standing, risk tolerance, investment horizon and goals.