Just think how hard you work for your money. You sacrifice your family life at times to meet deadlines at work. You forego your leaves and your kid’s annual functions to ensure that the paycheck comes home without a cut. In fact, you toil through the month to see that lovely paycheck. But, the moment it lands in your hand, goes down the drain faster. You pay all your bills, get your groceries and your car serviced. You go out to have dinner with your family and friends to enjoy the hard earned leisure. Within a few days or maximum by the end of first week, the money is over. Now, you look for the next paycheck to arrive and you end up living hand to mouth very single month.If you happened to fall in this category of hand to mouth existence, you need to take a good look at where your money is going. Because if you didn’t, you can never ever be financially secure without good savings habits. Financial security would not come even when you would be earning multiples times more. Because, by the time, your pay doubles or trebled, your expenses would have quadrupled.
Savings are therefore of prime importance to have a good relationship with money. You can’t afford to have a bad relationship if you dream of total independence in life. Finances are the backbone of your life. You can’t afford to keep it fractured if you wish to move ahead quicker and faster.
But, how do we do this?
Lets look at the below mathematical equation:
Income – Expenditure= Savings
Well you may be wondering, what’s special in this? Everybody knows that and does it. This is what you do every single day. You earn and spend and whatever is left after expenditure is your savings. This equation is self explanatory. Why am I using it here?
At the outset, the equation would mean that Savings is the result of what remains after spending from income. But this is the mistake most of us tend to make. We keep savings at the end of the equation. It’s not a priority. Supposedly, it is left out portion of the income.
Savings should come at the top of your expenditure plan. You must decide on savings priorities than on spending priorities. But, how do you do it?
To start with, consider the following questions when you go spending:
- Do you consider the utility of the goods or services that you are spending money on? What are the factors that go into making a decision to buy?
- Do you plan your expenditure periodically before you go shopping or buy impulsively?
- Are your purchases driven by emotions or practical use?
- When you or your family member spends, does it happen in isolation or with consensus?
- Do you think about the regular financial commitments that you have every month or fortnight often?
- How often do you check your credit card statements, your electricity bills or your mobile bills?
In order to answer the above questions correctly, you are required to understand the two basic concepts: Needs and Wants
Needs are the physical and practical requirements of our daily life without which we cannot imagine our existence. Wants are emotional needs. These can be foregone to save to achieve big goals in life. Anything that you buy may be either be classified as a need or a want.
So, let’s do an exercise. Please classify all that you buy in a month into needs and wants. After you have listed all your bills and items that you spend money on, you would have realized that the wants outweigh your needs. Needs of any person are limited but wants are unlimited. Therefore, the first habit in cultivating a good habit of savings is ÜNDWERSTANDING NEEDS AND WANTS and reducing the wants to the minimum.
The second step will be planning your expenditure which is Budgeting. Budget your expenditure and avoid impulsive buying. You are walking by a store and you see a lovely Levi’s jeans. You want to buy. This is impulsive buying. Please don’t do that.
- Set your goals: Setting your financial goal is vital to save money. Unless you know what you are saving for, you won’t be motivate to save. Having a clear purpose in mind directs all your efforts and you end up saving quite a lot.
- Incorporate all you family members in planning the Budget: It is important that every family member including the kids participate in the planning process. This would help you to segregate wants from needs and also allow you to incorporate the needs of all members holistically.
- Automate your payments: there are bills to be paid every month like Credit Cards bill, Electricity Bill, Mortgage payments, car EMIs etc. This would help you to save on late fees and penalty by paying one time.
- Pay yourself first: Do you realize why the government deducts Provident fund contribution, TDS(Tax deduction at Source which is nothing but your income tax) from the salary. They never reach you. You earn them but don’t get them. These are statutory savings and expenditures. I would suggest you to incorporate this habit of statutory savings in your monthly paycheck. This way, you will a definite amount every month. If a begger can live on alms. You too can live on the remainder of money after paying yourself first.
A good way to show the importance of saving is to tell the story of the ant and the grasshopper.
In a field one summer’s day a grasshopper was hopping about, singing to its heart’s content. An ant walked by, grunting as he struggled to carry heavy pieces of corn.
“Where are you going with those heavy things?” asked the grasshopper.
Without stopping, the ant replied, “To our ant hill. This is our third delivery today.”
“Why not come and sing with me,” said the grasshopper, “instead of working so hard?”
“We are helping to store food for the winter,” said the ant, “and we think you should do the same.”
“Winter is far away and it is a beautiful day to play,” said the grasshopper.
But the ant went on his way and continued their hard work.
The weather soon turned cold. All the food lying in the field was covered with a thick white blanket of frost that even the grasshopper could not dig through. Soon the grasshopper found itself very hungry.
He staggered to the ant’s hill and saw him feasting on the corn which had been stored up all summer. He begged them for something to eat.
“What!” cried the ant in surprise, “haven’t you stored anything away for the winter? What in the world were you doing all last summer?”
“I didn’t have time to store any food,” complained the grasshopper; “I was so busy playing that before I knew it the summer was gone.”
After a long discussion, the ant shared some food with the grasshopper. The grasshopper saw the big mistake he had made and vowed never to make the same mistake again.
This story helps to explain why it’s important not to spend all your money but to save some money to be used when you need it. It’s a valuable lesson that illustrates the benefits of hard work, preparation, and saving.