What does saving money means?
The concept of saving is a very important part of our personal financial planning and helps us achieve the financial freedom that we dream. Saving money means that you find ways to pay less money when you shop and also paying the best price for the things you want to buy and deciding not to buy everything that you want. There are many ways and methods to save money, time and effort but the most important thing required for saving money is our behaviour and our habits. This blog talks on What does saving money means?
“Save money everyday and Money will save you one day”-Unknown
Our behaviour and habits define who we are & how our financial state will be. A man earning 50k/month and spends 55k/month is not financial stronger than a person who earns 25k/month and spends 20k/month. Although the first person earns higher, he ends up in debt of 5k at the end of the month whereas the person who earn lesser save 5k/month. It all primarily depend on us and our habits .
Saving is for all:
“Saving money doesn’t require caste, religion, race, language or any social status”-Aarth
The idea of Saving is thought to be only for people from middle and bottom strata of the society. We know our society can be divided into different groups based the wealth and money one holds & earns.
Social classes or classes of society as generally classified are:
- Lower Middle
- Upper Middle
- Elite or High
According to Pew Research center, a nonpartisan fact tank that informs the public about the issues, attitudes and trends shaping the world,95% of Indian population and 71% of World population are poor or low income.
Despite the class divisions in our society and around the world, saving money is not attributed or mandated to just one class of the society. It should be a regular habit or a second nature to every individual in the society who wants to be free of money problems. People wants to learn and sometimes learn the ways of earning but forget the way of saving.Saving is as important as earning. As a child learns to crawl, walk and run, he/she should be taught of saving. Parents are responsible to impart this valuable lesson of saving to their children and in the process they become more conscious of their own habit of saving.
How do I save money and how much do I need to save?
“Saving must become a priority,not just a thought.Pay Yourself first.”- Dave Ramsey
There are various ways by which we can save money starting from the moment we receive our pay or salary. Pay yourself first before starting to pay your bills, rents/mortgages and other debts. The way of saving or the habit of saving money is a combination of smaller acts of willpower and conscious decision making.
In her book, All Your Worth: The Ultimate Lifetime Money Plan, Elizabeth Warren, a former law professor and presently serving senate, popularized the so-called “50/20/30 budget rule” or “50/30/20 rule”. The basic idea of the rule is that after all deductions from our salary 50% goes to needs,20% goes to wants and 30% to savings.
Net salary (Gross salary-tax)=50000
According to 50-20-30 rule,
Needs – 50% of 50000 = 25000
Wants -20% of 50000 =10000
Savings -30% of 50000 =15000
Let us see how the 30% savings can be distributed so that on emergency situations like job loss or unexpected medical conditions, we will be able to manage the financial burdens. There are concepts of narrow and broad money in financial world which defines how fast we can convert our financial assets such land, house, stocks, shares and others into easy or quick money.
The Narrow money represents the cash in our hand, amount in our demand saving account and other readily convertible assets. Likewise, the broad money represents the money that are harder to convert into ready cash within short period. At the end, the idea is to distribute our savings into different categories of Narrow and Broad money.
- Cash in hand and home
- Money in demand saving account
- Amount in emergency account
- Money in pension account
- Amount in insurance account
- Money in Term deposit account
- Extra money payment to debts (saving future interest)
- Money to invest .
We can equally distribute to each of the eight categories listed or distribution can be done based on our personal priorities. But the important thing to keep in our mind is that money value differs by time and concentrating on one side of saving spectrum (1 to 3 or 4 to 8) will be fatal to personal finance.
- Record your spending
- Have a budget
- Plan your spending and saving
- Set saving goals
- Have the comparative study and record of prices of goods from different shops
- Know the quality of the product you buy.
- 30 day rule:
Want to buy a thing ,keep it in shelf for 30days.After 30days ,if you really need the thing,buy it or else keep it in the shelf for another 30days.
2.Saving money when you shop:
Comparing the price, quantity, quality, necessity and usage is very important to save money while we do our shopping.
Obstacles against saving:
“Beware of little expenses;a small leak will sink a great ship.” – Benjamin franklin
Temptation and instant gratification are the greatest foe of saving money. Our paths are filled with temptation that would empty our wallet both physical and digital. The most dangerous place of all ,is the beautiful, grand, colourful and shining Malls. Malls are complex of different shops of different varieties all put under single roof where consumers are consumed day and night. No plan will be the worst of the three obstacles that prevents us from saving and reaching our financial goals.
Steps to remember to overcome the obstacles:
- Set our financial goals
- Create a plan to achieve it.
- Stick to our plans.
- Guard ourselves from temptations.
- Practice patience against instant gratification or pleasures.
” The price of anything is the amount of life and time you exchange for it” – Unknown