Well, the new year 2012 has begun and hope it has started on a positive note for everyone. Our first resolution was to “Stay on Top of our Credit Card“
The second financial resolution is going to be “I will Save atleast 10% of my Salary Every Month“. Yes, thats what our resolution is going to be. This is easier said than done, but lets strive towards it.
Before we begin, you would be astonished to learn that the average saving rate in India in this generation (as a % of their monthly income) is only around 5-6%. Whereas our fathers and grandfathers saved more than 10% of their monthly income. The concept of Credit Cards and a million other types of loans have depleted the concept of “Saving for a Rainy Day“. Sad, but true!!!
If you were someone who was surprised by the above paragraph, you would’ve had this question in your mind “What is an ideal Savings Rate for an Individual?“
The answer my friend is “It Depends“. Yes, it depends on your situation. If you are a bachelor with no dependants and a dad who is also earning, there is practically no savings required. Whereas, if you are a married man with a wife and child to take care of, you need to save some money for your retirement as well as your kids education, marriage etc. So, the true answer to this question is It Depends
But, the rule of the thumb is “Around 10-15%“.
An Interesting Point:
Financial experts suggest that any individual who works for a salary must have liquid cash equivalent to atleast 3 months of his/her monthly salary for any emergencies. What if you suddenly lost your job? What if you met with an accident and cant attend work for a few months? There are a hundred other “What If’s“ that can be added to this list. Lets hope and pray that, such what if’s dont have to be answered by us in real life, but frankly speaking the saying “Better Safe Than Sorry“ cant be more apt at this juncture.
If you were a curious person you would ask me “Why 3 months?“ Did this question come up in your mind? Well, the fact is that, 3 months is a comfortable amount of time for you to get a different job or to recover from most major illnesses. So, a 3 month salary cushion in your bank account means that, your family is going to be well taken care of in the 3 months that you will spend hunting for a job or recuperating from an illness. Now, do you think the 3 months concept makes sense?
Can I Really Save 10% of my Salary Every Month?
Yes, you can do it my friend. 10% may sound a huge chunk but, nothing is impossible. Think this way.
Lets say you are someone who earns Rs. 50,000/- every month. If you save Rs. 5000/- every month, you will have enough money to make the initial payment for a small car. Wouldnt it be cool to own a car?
This was only a very crude example. The fact of the matter is, the benefits of saving money cannot be emphasized much. “CASH HAS AND ALWAYS BE THE KING“
Some Tips to Spend Less and Save More:
1. I will keep aside 5% of my salary on the 1st day of the month as savings for the month as a mandatory activity. I will move this money to a different bank account and lock the Debit Card in my cupboard.
Reason: You can only spend what is there in the bank account you use on a regular basis. If the money isnt in your bank account, you wont spend it. Moreover, this 5% will go a long way in your future plans2. I will not touch the back-up bank account
Reason: What is the point of saving money, if you scratch into it every now and then. Forget the fact that you have a back-up bank account. Use it only for emergencies. For all other purposes try to use your regular bank account or other cash sources.3. Whatever money I have in my bank account on the 30th day of the month (The day before Salary Credit), I will move it to my back-up bank account
Reason:Moving any left-over money from your previous month’s salary into the other account will ensure that, you will not overspend this month. After all, you spent only so much this month and you wont actually need this surplus next month. Wouldnt you?4. I will try to cut my unwanted spendings and try to save atleast 2-3% of my monthly salary or even better beat the amount of money I saved last month on the 30th.
Reason: It is a good idea to set saving targets and try to achieve them. If you see that last month you saved 2500 rupees and target to save atleast 3000 this month, you will be amazed to know that, you will actually save more than 2500 this month (unless there was an emergency or you went astray on your saving goals)
You might be wondering, the title says 10% and the first point in the above section starts with a 5%. Are you???
The reason for that is, you would’ve been used to a certain lifestyle considering your current salary. 10% cut on it is huge and will take quite a dig at your lifestyle but 5% is manageable. 95% of your salary is good enough for you to survive without compromising your lifestyle. Moreover, we are targeting the money that remains at the end of the month in your bank account (another 2-3% of your salary) and are planning to beat this every month. So, if you sincerely follow this resolution, i am sure you will reach the 10% saving target within the next 6-12 months.
Isnt that great? After all, who doesnt want a better home or a great education for our kids or a fantastic marriage for our daughter? Dont we all?
I am sure you will say, “Of course I do...“
Happy Saving Money!!!