How To Make Household Saving On Long-Term Impact
Do you remember the time you got your first piggy bank? In all probability, your excitement to collect money would have known no bounds. Moreover, very few moments would have compared to the joy of breaking your bank and seeing all your loot.
Well, that was perhaps your first lesson in saving. It taught you to be patient and collect money penny by penny. It showed you how patience and curbing your temptations helped you accumulate funds for a larger goal.
In India, household savings have always been a priority. Between 2014 and 2015, India’s total household sector savings were INR 23,804.88 billion out of which INR 9613.07 billion included financial savings while INR 13794.11 billion was in physical assets.
In 2019–2020, the gross financial savings from households stood at INR 21.63 trillion, which was marginally better than the gross savings observed in 2018 to 2019, which remained at INR 21.23 trillion.
Most of us have witnessed how our parents have made compromises and saved money to give us a better life. However, as we start earning, many of us struggle to do it.
Our desires take precedence, and we tend to live in the moment. It happens because we tend to lose sight of the bigger picture.
In this article, we have explored the importance of savings and how it can help you build a better life.
Why is Saving Money so Important?
The importance of saving money can never be stated enough.
In fact, with the slew of proven benefits that it brings, saving money is one of the best financial habits you can adopt for yourself.
If saving money doesn’t come easily to you, or you do not see the point of it, it is natural to question its importance of it. Let us find the answer in detail.
1. Financial Freedom
We all know that one person who keeps working for an employer despite the fact that they don’t enjoy the job.
Their financial obligations do not allow them to quit and pursue something close to their hearts. If they had enough savings, it is very likely that their passion projects would come to fruition.
One of the core reasons to save money is to provide yourself with the freedom to chase a career you love.
When you have sufficient amounts of cash sitting in your savings account and a pile of investment generating interest, you become financially independent in the truest sense.
You know that you will be able to manage your expenses in any situation and won’t have to depend on anyone to help you out.
2. Long-Term Security
Aging and having low energy in your later years is a fact of life.
You might now be young and willing to hustle but it will not be realistic in your old age. The only thing that can help you then is a financial safety net.
Without strategic investments, there is no way that you will have wealth accumulation for your old age.
Savings and investments assure a cushion of comfort for your old age.
3. To Manage Emergencies
Emergencies are a part of life, and you never know when one may knock on your door.
From a family situation that may require you to fly across the country to emotional emergencies such as a broken-down car, life can throw any curveball at you.
In such situations, knowing that you have a decent amount of money saved up, you will be able to sail through your stressful times.
It is for this reason that financial experts advocate setting up an emergency fund. In all likelihood, you may never need to use this fund, but your future self will be grateful that it exists.
If you are wondering how much you should save in this fund, the answer is about 3-6 times your monthly income. Don’t worry if you hadn’t given it a thought before. You can start working on it now. It’s never too late to start.
However, you may want to make it a point that this fund is liquid at all times. If you lock it away as an investment, you will lose the whole point of it.
Free access to this money at all times will ensure that you can manage any emergency on your own.
4. Your Financial Legacy
Whether you are at a life stage where you are planning a family or not, it is advisable to think about carrying on your financial legacy to your children.
It is never too early to prepare as children are a huge financial responsibility.
Apart from ensuring that they get everything to enjoy a happy and healthy life, it will ensure that they do not have to witness financial stress. Needless to say, such turbulent times may impact their development and confidence.
Investing in saving instruments now can help you build a financial legacy for your loved ones. A lot will depend upon your willingness to forgo temporary desires and the decisions that you make.
It is advisable to trim your expenses, get out of any debt, and prioritize your savings and investments. It is one of the best things you can do for the future of your family.
5. To Pursue Higher Education
Do you wish to pursue higher education or learn new skills such as learning the guitar? If yes, you would know that nothing comes without a price.
While your parents may have supported you earlier in life, you become responsible for your expenses when you start earning.
Moreover, if you have any loved ones dependent on you, their mandatory education will only be fulfilled when you save up a certain amount.
College is expensive, and so are other educational endeavors like high school, middle school, and preschool.
Due to this, building up a corpus for the purpose of future education of your children is also wise. The best way to ensure that you do not spend that money is by investing it in assets that will give valuable returns.
6. Manage Big Ticket Expenditures
As you grow older and have a family, your financial obligations are only going to increase.
From moving out from your parent’s home to buying a vehicle to managing your own monthly groceries, these expenses can often stress you out.
Unless you start saving and investing your money in places where the magic of compounding can work on it, you are likely to struggle with big-ticket expenses later in life.
Some of these expenses, like a car, will also depreciate in value. Thus, it is essential that you are financially stable before you go after such heavy expenses.
7. Minimising Risk
If you are big on taking financial risks by carrying out market investments, it is advisable to secure yourself with an adequate cushion.
It would help you from falling deep into the red zone if your investment instruments were to take a hit. The more you save, the lesser is the risk to your financial portfolio.
Saving is not the goal, but balancing your portfolio with both risk and reward from differing investments is.
If you have put your money primarily into highly volatile instruments like small-cap stocks, hedge funds, etc., balancing this risk with saving instruments is always recommended.
Do not take this advice verbatim and enlist the help of a portfolio manager if need be. The key here is that investing grows your money while saving minimizes the risk attached to investing.
Long-Term Impact Of Household Savings
Ultimately, the importance of saving instruments is that they yield a decent amount of interest and do not let your income sit idle. It is actively making money on its own.
A real difference can be made obvious over the years when interest compounds on itself and increases the amount you have saved up by a substantial degree.
Within years, you will start to see impressive results that are simply because of the interest earned.
The real impact of compounding comes when you start early. Several investors have lost out on this opportunity and regretted delaying their savings by a few decades.
Compounding is a lot more pronounced with market investments, but it also shows impressive results with high-interest savings tools such as good bank FDs, insurance, and tax-free FDs.
Finally, to see the long-term impact of compounding, you need to remain invested for a long period of time.
Although Indian households have always placed greater importance on savings, it has become all the more imperative in the current times.
Not only do they minimize the risk attached to your riskier investments, but they can also be used as a means of attaining your financial goals.
Thus, saving is probably one the best things you can do with your income, in addition to investing it.
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