There is a huge difference in the spending patterns of individuals from different age groups, countries, generations, and societies. This is because everyone deals with finances in different ways that are unique to them based on their liquidity requirements, lifestyle, stage in life, financial goals and aspirations, etc.
Millennials now form a majority of the Indian workforce, they will be the breadwinners of their families. However, it is observed that they have a higher tendency of not saving enough compared to the older generations. A Deloitte survey found that Indian millennials save less than 10% of their income. Which is a sorry figure when it comes to managing finances.
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Importance of savings
Savings are an age-old practice of creating a corpus of wealth. Now, this wealth can serve multiple purposes, as a fallback option in times of emergencies or as a way to expedite substantial purchases buying a house, car, funding your child’s wedding, etc. Since you cannot amass wealth overnight it is recommended to start early in life. Ideally, you should start saving the moment you start earning even if it is a small amount. Small savings can eventually create a huge pool of savings over some time. The power of compounding can help you in creating generational wealth.
Since we’re at the beginning of a new financial year. Here’s how you can reclaim control of your finances and grow your savings easily.
- Follow the 50-30-20 budget rule
This is one of the simplest ways of inculcating the habit of savings. You can only save when you follow a budget. Budgeting may sound complicated but it’s not. Using this 50-30-20 budget rule you can easily calculate how much you must save. This rule stands true no matter what your paycheck reads.
Lets’ bifurcate the percentages with an example. Say an individual earns Rs. 50,000 per month, this is how he should manage his finances.
50% – Your basic non-negotiable necessities like food, rent, grocery/utility bills, EMI’s, tuition fees, etc. These are your recurring costs that take up a major part of sustaining.
The individual in the example can spend up to Rs. 25,000 on needs.
30% – Your wants, i.e. your lifestyle choices. It could be dining out, ordering apparel, shoes, maybe buying a gadget, etc. Anything beyond your basic needs is categorized as wants. This is where the problem area lies. Millennials tend to max out on wants but the key is to manage better by scheduling your wants instead of blowing all your money in one month.
The individual in the example can spend up to Rs. 15,000 on wants.
20% – The most underrated yet highly significant chunk. This 20% should be chalked out towards savings. It may sound less for someone who has just started earning but it goes a long way in the future.
The individual in the example must set aside Rs. 10,000 per month.
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- Start saving money in systematic Savings Instruments
This will by nature force you to set aside the 20% of funds in an instrument where your money will grow. There are many instruments available in the market one of which is the Systematic Investment Plan (SIP). The SIP is an easy investment option that accumulates your small monthly savings and creates a corpus over a tenure.
There are other options as well like a Recurring Deposit (RD) and Fixed Deposits (FD) that also help with savings. This is a sure-shot way of growing your money instead of just letting it sit idle.
By just saving small amounts monthly you can grow a corpus of a significant amount eventually over time, which can help you fund significant financial goals and create an emergency fund. Take control of your finances in 2022! Start saving now!
