Discipline of Saving

Saving is not limited to ensuring a positive bank balance. There is much more to it. Savings is a skill, an art, a science, and, above all, a constant challenge to fight your temptation and become disciplined.

Saving before spending is the golden rule of personal finance. Most people live by the equation Income – Expenses = Saving. This means most people work hard and when they get salaries their first priority is to put money in others (companies and traders). But financially literate people understand that this equation needs to be flipped on its head in order to pay yourself first. Actual equation that needs to be used is Income – Saving = Expenses. First put away the amount that you need to save to meet your financial goals and then plan your expenses with the money that is left over. This ensures that you enjoy your present and also be ready for the future by investing your saved capital. Have the entire family onboard including the kids to ensure the success of this endeavour.

Moreover, high regular savings are necessary to build up a retirement corpus. High savings naturally translate into a reduction in discretionary spending. We focus on finding cost effective alternatives for everyday expenses rather than splurging money without second thought..

Saving Rate

Everyone’s situation is different and not all can save at the same rate. Just start saving whatever you can. Gradually increase your savings rate as your income stabilises and increases. Gross savings rate in India is about 30%. Keeping lifestyle inflation (standard of living) in control is a simple way to increase savings when you get salary hikes.

Automate Transfers

Automate transfers refers to the practice of setting up automatic deposits into your chosen investment accounts at regular intervals (weekly, monthly etc). This removes the burden of decision-making and potential for procrastination. Once set up, it does not need manual intervention and enforces consistent saving. These savings can turn into large wealth to support in time of need. So, set up a mechanism so that your money gets invested each month just after your salary gets credited. Systematic investment plans (SIP) or Recurring Deposits (RD) can be used for this purpose.

Separate Expenses and Savings Account

Keep different bank accounts to handle regular expenses and monthly savings/investment.

Everyday Expenses: Use your salary account linked to a debit card for your monthly bills, groceries, and other regular spending. This helps you keep track of where your money goes.

Saving and Investing: Open a separate savings bank account for your savings goals and investments. This account can be used to transfer funds to a brokerage account for buying stocks, mutual funds, or SIPs (Systematic Investment Plans), RDs (Recurring Deposits) etc.

Calculate the required amount needed to cover monthly expenses and transfer all excess money from your expense account to this savings/investment account just after you get salary. Any additional income during a month should also be transferred to the Saving and Investing account. This approach keeps your spending separate from your future plans and helps you avoid dipping into your savings for everyday needs.

Review Your Monthly Expenses

Look for the possibilities to reduce costs. Track your spending regularly to ensure you stick to your spending plans. Regularly monitor your progress to identify areas where you might be deviating from your plan.

Pay Yourself First: Before allocating funds for expenses, prioritise transferring money to your savings or investment accounts. This ensures you prioritise your financial goals.

Scrutinise Recurring Costs: Review subscriptions, memberships, and recurring services you might not be using regularly. Consider cancelling or downgrading these to save money.

Embrace Frugal Alternatives: Explore free or low-cost alternatives for entertainment, hobbies, and even transportation. Check out library resources, free community events, or explore your city on foot or bike. Think before taking your car out for local needs especially when you are going alone.

Fun Money: Allocate a small portion of your budget for guilt-free spending on hobbies, entertainment, or occasional treats. This helps maintain motivation and prevents feeling deprived.

Use Cash Instead of Cards

Paying through cash is a simple yet effective way to save money. Research shows that your brain thinks differently when you pay in cash than when you use cards or payment apps. Digital payment leads to more impulsive spending. Paying with cash makes the transaction more tangible and can make you more conscious of your spending. It’s harder to overspend when you’re physically handing over money.

Prioritise Living Near Public Transport

When searching for a new house rent, make being close to a train station, metro stop, or bus stop a high priority, especially if you rely on public transportation for your daily commute. This will save you time waiting for connecting rides (auto rickshaw etc) and make your commute easier. Daily walking is not only good for your wallet, it also improves your health.

Reduce your debt burden

Your plan to live within the budget and save and invest for the future cannot succeed if you are burdened by high interest debt. These high interest EMI payments reduce your capacity to save and invest. Having too many loans can also diminish the ability to save.

Delaying Gratification

Not spending the money you have today and investing it so that you can spend it in future is an exercise of delaying ratification. Spending the money that you don’t have today by using instruments like Credit Cards and BNPL promotes instant gratification. These instruments remove the ‘pain of paying’ and people end up buying more than what they actually need.

Though, resisting the charm of easily available loans which satisfies the need of instant gratification is difficult. But practising delayed gratification helps in financial planning. For example, instead of taking alone to buy a Rs. 20,000 item, try saving 4,000 for 5 months. The idea of buying the item with your own money increases the pleasure of purchasing it. Moreover, this waiting period also helps you see clearly if you really need this item. And, if you realise that you don’t need this then the money you have invested can be used for a more worthy purpose.

Before making a purchase, pause and ask yourself if you truly need the item and if it aligns with your financial goals. Mindfulness helps you become more aware of your spending habits and can prevent impulse purchases.

Avoid Temptation

Stay away from places or situations where you’re likely to overspend, such as malls or online shopping websites. Unsubscribe from marketing emails and avoid window shopping if it often leads to impulse buys.

Saving Is Not Investing

Only saving is not enough. Money loses its value due to inflation if it is kept idle. Invest according to your financial goals and risk taking ability to make your savings grow. Having your investment diversified across equity, debt, real estate, gold etc will help you earn good risk adjusted returns over the long term.