Savings

Savings should not hurt they should be a tradeoff. Every time you save, you must think you are gaining something in the future by giving up something now. So if you save with specific goals in mind like buying a home, educating your children, retirement or setting up your business, you will not mind making cuts in your spending.

The longer your time horizon, the more you can save in investments that return more but are riskier. If you have small savings, stick to a savings account or try a mutual fund that allows you to start with around $1,000. The key is to be able to save and invest at regular intervals it may be weekly, monthly or quarterly.

And don't forget to save and invest even self employed. In fact, it is even more essential to build a financial cushion, since income flows of self employed individuals are susceptible to wild fluctuations from time to time.

Don't be left with crumbs to invest Are you saving enough? Before you can invest, you should have saved enough. So how much is enough? If you save over 20 per cent of your income, you are doing as well as the average Indian. If your savings exceed 30 per cent, you are ahead of the game and have solid foundations to build your financial goals on. But how do you know how much you are saving? just add up the contributions you have made to your provident fund and the funds you have not used from your monthly salary check to come up with your savings.

Even though saving a high percentage of your income is a good sign, you do need a certain minimum income. If 30 per cent of your savings is $ 3,00 a month, that's good, but you also need to work towards pumping up your income.

Saving money requires discipline You have to be motivated to save. Therefore you need to set savings goals that make it worth your while. The key is to determine how much you need to save to reach your goals. Visualize your financial goals. You are going to save only if you are clear on what you are saving for.

Most Indians save enough, but just don't have it right on where to invest their savings. But if you are not one of them, let's first get into the savings habit the important thing is to get started on saving regularly even if it is a small amount. Start with something that will not put undue strain on your finances. But do it regularly.

Many of us look around and say that the generation before us was lucky. They got to buy plots and build houses at rock bottom rates and now all they do is enjoy fat rentals and sit on millions of rupees worth of property. Well these folks scrimped and saved on their low incomes to build those houses. The crucial factor was financial discipline.

Most of us are more charitable than we think. Why else would we make others rich by borrowing at astronomical rates to buy a car, pay credit cards ridiculous interest rates to purchase clothes beyond our means and so on. Guess what, we are just never able to live the way we want.

How many times have you wanted to do something that you love doing except that it would not be enough for your bread and butter. If you save and invest, you can enjoy what you do and have the money to stop worrying about the occasional unbudgeted expense.

Small spending cuts become huge savings Spend less than you earn and if you like to spend more, wait till you find a job that pays more or a business that generates more. Whatever your income category, this rule is universal. Save something and put these savings to work for you.

Let's look at some interesting statistics. If you purchase clothes worth $ 100 on a credit card and make minimum monthly payments, it will take you six and a half years to pay back in full if the card charges 18 per cent interest. Does this make any sense? And if you don't have this credit card bill it's like saving and investing at 18 per cent. This could be the best investment you could make since I don't know of many financial products that are safe and pay 18 per cent. If you have credit cards, don't fall into the minimum payment trap. Pay the entire balance when you get your bill or at least pay as much as you can and more than the minimum. Remember, credit cards are a facility to meet immediate cash needs or free you from carrying cash.

If you have extra cash and there is no prepayment penalty on your car loan or your housing loan, go ahead and pay more than your regular installment.

Do I want or do I need is the question you need to ask. Sticking to what you need when you don't have extra cash may save you a lot of misery. And love is not all about money if you are married, buying gifts that you just cannot afford does not prove that you love someone. Do you want your life to be on rent? Be rich, don't waste what you have on trying to look rich.

Focusing on short term financial needs is much easier. Defining what you want in life and then going about getting it is the hardest part.

Haven't saved all these years, you might say. You could make up for lost time if you start today. Many of us have just not saved enough in all these years and Just thinking about the financial goals we want to achieve seems to make it look like an impossible task. If you don't start now, it's going to get worse. So let's see how we can go about putting things right.

Reduce spending or boost your income For most people, spending is in their control, boosting income isn't. So start by cutting costs.

Do a little homework on your investments If you do have any savings and they are languishing in a bank account, you can do much better by putting funds in a money market mutual fund or a debt fund.

Keep taxes in mind just a little tax planning could put a big chunk of your income in savings. When you invest, find financial products that allow you tax deductions. Think of a second income Use your skills to find a second job or a part time job. Start a small business out of your house or using your contacts so that it supplements your income levels.

What do I do with the money I have saved?

Invest it, of course, you might say. Not so quick. Before you invest, make sure you have set aside savings worth three to six months of your income as an emergency fund. And since emergencies come unannounced, make sure these funds are in cash or can easily be converted into cash at 24 hours notice. Don't rely on your credit cards to save you in case of an emergency. You will be crushed under the high interest they charge. If you have a loving family, you probably don't need to worry. But even in such circumstances, you should have a three-month reserve. On the other end of the spectrum, if your income fluctuates from month to month (for example, if you are a freelancer or self employed) or if there is a high risk of losing your job, you need to keep at least a year's income in reserve.

Paying off non productive loans It's the best investment you will make. Delay only means increasing the interest burden.

For those of us who pay taxes, paying off debt instead of investing is essential. Hear this the taxman cuts taxes on any interest you earn but gives you no deduction (in most cases) for interest outgo. That means you are taking a double whammy earning lower interest rates and paying taxes on it rather than clearing that high interest debt.

Many of you may ask that if you had savings, why would you have run up debt. If that's the case, let's nip the problem in the bud. You will have to immediately stop additional credit on your credit cards.

Now we are ready to start investing. After you have taken care of that emergency fund and paid off nonproductive loans, set key financial goals you would like to save for. You should consider when you will need the money you have saved now and how much your savings must grow to let you meet any future financial goals. If it's buying a home, it may take five to ten years, if it is saving up for your children's college or your retirement, it may take fifteen to twenty years.