You are the talk of the town. The fashionable clothes…the new smart phone…The new bike. You earn, you spend. No care for tomorrow. Your motto…Tomorrow will take care of itself. You earn a handsome salary and blow it up in a matter of weeks. At the end of the month, you only have a few rupees left. Just when all seems lost…The next paycheck comes to your rescue. So what if you save nothing from your hefty pay packet?
Time to remember this great saying by Chanakya, an Indian teacher, philosopher, economist, jurist and royal advisor. You should spend money according to your income and capacity. Overspending will kill you.
Now to the big question….
You are in your late twenties or early thirties. Saving at this young age is very difficult. If you are a CEO of a Company…it’s not too difficult. But how many of our citizens are CEO’s of a Company, at the tender age of 30?
This is the age when you have just availed a home loan to buy your dream home. You are struggling to pay your home loan EMI’s. If you are a bachelor, this might not be too difficult. But what if you are newly married? You have to take care of the expenses of your spouse and your toddler. Then there are lifestyle expenses. Everything is so costly. Most of what you earn is eaten up by expenses. Why not postpone saving money for better times? But will these better times ever come? If you are in your late 20’s, you must save at least 20% of what you earn. This goes up to 30%, if you are in your early 30’s. Sounds difficult, but can be done.
Ravi has just completed his computer engineering and got a job in a reputed IT Firm. Just like any 25 year old, Ravi likes new clothes. He buys new clothes every week. Ravi does not let the month pass, without buying a new pair of shoes. Ravi likes riding and has just bought a fast bike. Ravi has to have a new smart phone every 3 months. Ravi is an impulsive shopper. He just swipes his credit card, whenever he sees something he wants. He sees…He wants! Guess what, Ravi has no savings because he lives life King size.
Ravi is a man always in a hurry. One day Ravi in a rush to reach his office, neglects to check the road while crossing. He is hit by a car and lands in hospital. The medical bills are high and Ravi has to borrow from friends. A few weeks later, Ravi makes a full recovery. His friends ask for their money back and Ravi has to sell his bike to repay them. Ravi had no savings and when he needed money in a hurry, he had to sell his bike. This is what Warren Buffett tells you “If you buy things you don't need, you will soon sell things you need”.
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Save first…. Spend later…
Follow this simple rule. Your income – Your savings = Your Expenses.
Control your urge to spend
Ravi was an impulsive shopper. He was not able to distinguish between needs and wants. You can follow a simple trick if you are an impulsive shopper. You see a beautiful pair of shoes in a shop. You just have to buy it. Wait…Just postpone your purchase by a day. Chances are when you wake up tomorrow, you will forget all about the shoes.
Shop using cash
Ravi is an impulsive shopper. He just swipes his credit card and the bill is paid. Ravi is a reckless spender with a dangerous weapon…The credit card. You never realize how much you spend if you use a credit card. If you are a shopaholic you better leave your credit and debit cards at home. Take cash when you shop. Shopping stops when cash runs out.
Heard this saying “Life Really Does Begin At Forty. Up Until Then You Are Just Doing Research”. Yes, the 40’s are a great time to save. Most of your home loan EMI’s are paid back. Your kids are now in college. They would soon be working and leading lives of their own. You and your spouse are earning quite a lot of money. Your career is at its peak. You are spending just 40% of what you earn. This means a whopping 50% to save and invest. If your spouse is also working…then perhaps more.
Your children would be working, married and well settled. Home loans have been paid off…your home is well and truly years. At this age you have hardly any expenses. You are almost at the end of your career and earning a lot of money. Your spouse is also earning quite a bit. You need to save more than 70% of your salary. Saving and investing for retirement is all you need to care about.
The Marwar region of Rajasthan, lies partly in the Thar Desert. Nothing much grows there. The land is not very fertile. Food and water are scarce. Lack of natural resources has made Marwaris good savers and tight-fisted businessmen. Marwaris learnt to save the most precious resource “WATER”. Marwaris have rain water harvesting systems. They have underground tanks to store water. Today, Marwaris have good canals and irrigation facilities.
If Marwaris can save water, how difficult can it be to save money?
Mr Birla is a 30 year old Marwari, who runs a flourishing electrical appliances business. His father met with an untimely end, in a road accident. He inherited this business from his father, at a young age of 25. Mr Birla did not find running the business difficult. Why was this so? Mr Birla’s father had taught him to save from a very young age. He told him “Save for an emergency, even if your business is flourishing. Who knows what tomorrow holds?”. Spend every rupee wisely. Do not buy anything you do not need, even if it is a flower vase. Spend money only on education and marriage. Mr Birla always keeps money aside for a rainy day. This is his emergency fund. “Who knows what tomorrow holds?.”
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Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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