As a kid, we were always told to save our pocket money and use it to buy things we wanted. Our parents wanted to inculcate habits that can help us fulfil our dreams one step at a time, manage emergencies and unexpected events without the need for borrowing money. As we grew older, the importance of savings became clearer. We were told to save a certain percentage of our income aside as savings and not touch that amount unless there is a dire need. Most of us started with a small amount like Rs 500-1000 a month. This has allowed us to manage difficult financial situations, expenses during festivals, birthday or wedding celebrations etc.
It must be clear by now, today we’ll discuss all about Savings. To define what Savings are, it is a portion of your income that you do not spend on your current expenditure and keep it aside for a rainy day. This amount helps us manage sudden financial situations like a medical emergency, an unexpected event, periodic large expenses (like insurance premium) or festivities and celebrations etc. Some of us save for planned purchases like the phone you like, the camera, a big screen TV, a motorbike you’ve been thinking to own.
So, how much money should be in savings? A general rule for savings is 6 times the monthly household income should be available in savings at all times. For ex. If my monthly household income is Rs 20,000, minimum savings available for me should be Rs 1,20,000. To save this amount, you should put 10-20% of your monthly income aside which in this example is Rs 2,000-4,000.
If the goal is to save for a small amount or duration, you can keep this money in a piggy bank at home. However, if your goal is long term and to save a substantial amount, a more formal method would be useful and secure. A savings account is one such method. Other methods that will also help you earn a small interest on the amount saved are Fixed deposit (FD) or a Recurring deposit (RD).
If you are still wondering why you should save, we’ll list down a few reasons that motivate others do this.
- Medical Emergencies – Since 2020, this has been a primary motivator for people to save as much as they can owing to huge medical costs in case of such situations. From treatments to surgeries, savings can help you manage situations easier
- Emergencies – Life is full of uncertainties and things can happen without an alarm or heads-up. Break down of your vehicle, sudden travel requirement, a sudden repair of your TV, whatever the need be, savings can save you from stress
- Wedding – Whether yours or a family member’s, weddings can cost a bomb. Most of us borrow to be able to have a decent wedding. A long term saving can reduce the burden of a loan
- Education – Education is very important for a better future. Saving for your child’s education can make a big difference to the quality of life they’ll lead
- Big purchases – Buying a motorbike, a 53 inch LED TV, a new smartphone or clothes shopping for Diwali for your entire family needs planning. Saving money for such goals can be the way to go
- Buying a Home or Renovation of an Existing Home –Buying a new home or maintaining your existing home can be an expensive affair. Planning and setting up savings can prepare you better
- Financial stability – Saving money and putting it in instruments that will help your money grow can help you achieve financial stability. Research for the instrument you’d like to invest in and start saving
Savings provide you security and freedom from stress. There are many more reasons to save, you need to find the reason that you feel motivated with. We recommend spending some time finding that reason and then taking that first step towards building a better future. For all of you who are already saving money, keep doing the great job.
Stay Safe and save money.