By : AMOD KUMAR YADAV, Manager - Projects Sales & Marketing, RDK INTERNATIONAL LIGHTING LLC
Industry : Investment Banking
Activity: 0 comments 354 views last activity : 07 06 2010 20:18:04 +0000
Most of the youth doesn’t understand the importance of saving. They earn just to spend, majority of the time their spending will be more than their earnings. Dependency on Credit Card is very common among them but it is the time to understand the defects of credit cards. Saving is an essential step on the way to financial well-being, both in the short term and in the long term. In the short term, it gives you an emergency cushion in the event that an unforeseen, large and urgent expense occurs. In the long term, a consistent pattern of saving can facilitate you to accomplish your financial goals, such as financing college education, Home Purchase, or Retirement. If more money comes in every month than goes out, then you are saving. If not, head over to the credit and loans section. If you are not sure, take a look at your budget. If you are in debt, you should start saving to pay it down (especially if it is debt at a high interest rate, such as on a credit card). Once you are free of high-interest debt, the next step is to build up a cash cushion to protect you from emergencies, such as a layoff or a Medical expense.
How much should you build up and set aside? We recommend that you must build up a savings of 30% of your annual income. The right amount for you will depend on the following:
Some people feel that they don't need this cash cushion, they believe that they can just run up credit card debt if they are in need. While this may be true, taking on Credit Card debt is a dangerous trap to fall into, because the high interest rates make it difficult to escape from. Additionally, saving the money is a great idea even if you don't need it for an emergency, because then you will be able to use it toward your long-term financial goals. Others say that they have stock and could just sell it if they needed. Again, they are correct, but the downside is that circumstances might force them to sell the stock even when they don't want to.
As you build up your emergency fund, and even once you have finished building it, the money should remain in a safe place. Any money beyond this cushion that won't be needed for several years can go toward higher-risk, higher-reward investments such as stocks, but this emergency fund should not be placed at risk. Since you want to be able to access the money on a moment's notice, keep it in a money market account or money market Mutual Fund.
How to save money
Saving money and being more economical is neither a science nor an art; rather it is somewhere in between and requires your commitment and hard work. Saving money takes time to develop, needs to be learnt, and brings benefits that will continue for the rest of your life. Begin saving money today. Do not put it off. Saving money is within your control and can bring you huge benefits. You will reap the rewards of saving money for years to come.
How much should you save?
Whether you save regularly or irregularly, a question often comes: "Am I saving enough?" Saving the right amount is essential for at least two major reasons.
First: It is only when you save money that you can invest in options such as Fixed Deposits, Public Provident Fund, Stocks, Mutual Funds, Real Estate and gold to create a future income for meeting small and large requirements, such as the education and marriage of your Children and your retirement.
Second: While it is necessary to prepare for the future, current needs also have to be taken care of. Equally important, we would like to have a life and enjoy it with our families. But the problem is that beyond a point, the more you live it up, lesser are the chances of accumulating enough savings for a minimum decent standard of living in the future. Clearly, drawing a balance between the present and future holds the key. The good news for you is that the balance is achievable if you follow certain rules that we present here.
Why You Should Save
While the benefits of saving money may seem obvious, there are a number of advantages to having a healthy savings plan that you may have not considered, some of them are given below:
Life is full of uncertainties, if there is anything certainty in life, it is that ‘unexpected things can happen at any time’. Whether it is a natural disaster, an unplanned illness, the loss of a job, or a bad investment, the financial consequences of an emergency situation can be unbearable if you are not properly prepared. A well established Savings Account can help you to prevent a Financial Crisis when these situations arise.
The main reason that people go into debt is because they make purchases that they can't afford. In these occasions, they usually turn to credit cards (which charge high interest rates and are often difficult to pay off). A well-funded savings account can allow you to purchase the items outright and avoid the pitfalls of borrowing money. Instead of using credit card you can use debit card.
Plan for the Future:
Everyone has something that they are planning for. Whether it is money to buy a new car, Pay for an Education, or fund an early retirement, many of the things that we want can end up costing a good deal of money. A well-organized and disciplined savings plan can help you achieve those goals sooner and without the drawbacks of debt.
Ten Money Saving Tips
We have developed 10 money saving Tips for you, that will help you to understand how to save money.
Tip – 1: Spend Less
If you are serious about being a long term money saver review what you spend and look at ways you can save money. Consider making telephone calls for instance only at off-peak times. Do you really need to have newspapers and magazines delivered? Can you do without those coffees you buy at break time everyday - would a flask of coffee taken to work save you money? What about using the public library instead of buying books or music CDs? Once you start looking for ways to spend less you will quickly become an expert and really save money.
Tip – 2: Set up a personal budget
Personal budget is essential for families and individuals. You will not be able to save money unless you know how much money is coming in, and how much money you have spending out. Once you have prepared a budget of incoming money and outgoing money, you will be able to identify areas where you can save. It is much more difficult to save money over a long period of time without a budget.
Tip – 3: Bulk is good
Think about shopping and buying in bulk. You can also save money by cooking in bulk. This is a real way you can save money with little preparation and almost no extra expenditure. Always purchase generics when you can. Prepared foods and convenience foods will always be much more expensive than the generic ingredients needed to make the food. Preparing food in bulk and in advance also gives you the opportunity to plan forward and be more accurate in your budget. Save Money by buying in bulk whenever you can. One thing to keep in mind when buying in bulk is to be sure that any product you buy will get used before it goes bad - you won't save money if you have to throw stuff away. Buying in bulk is not only a good way to save money it is also a good strategy for coping with and surviving emergencies.
Tip – 4: Think before purchasing
Always do your price researches before you commit to make an expensive purchase in a retailers money-off sale. You have to be sure the sale really is a sale and not a creative marketing strategy of the store to encourage you to spend your money without thinking. Once you have researched the true price of a product (any product) you are in a good position to take advantage of a sale, special offer or discount and really save money. "Buy one get one free", "50% off", and "Huge Discount" will only help you save money if the actual price you pay is lower than you would pay somewhere else for exactly the same product.
Tip – 5: Buy used
We all like to buy new. But there are huge money savings to be made in buying used. Typically cars lose one-third of their value in the first 24 months from new. Why not buy a car 24 months old? Other items such as clothes can be worth even less just the day after new. Look for ways to buy "as good as new" items and save money. Typical products you might consider buying used to save money include: cars, electrical goods, garden items, tools and sheds the list of used goods where you can save money is endless.
Tip – 6: Don't carry excessive debt
Some debt in our lives may be essential. We may need a mortgage to purchase a home, we may need to use our credit card to make purchases until pay-day, but your aim to save money should be to have as little debt as possible. Credit Card debt is typically the most expensive debt we may carry. You will be able to save money every month if you make it an absolute rule to pay off your outstanding balance every month. If you can have the discipline to do this you will save money by effectively having no debt and thus no interest charge on your credit card.
Tip – 7: Save Money
Each week or each month gets into the habit of putting an amount, however small into your savings. You could start by saving a very small fixed amount each time and then move to putting in larger amounts once you begin to save money from your other money saving strategies. You will find that by saving money on a regular basis you will quickly build up a store of reserve money and also feel motivated to save more. The hardest part is to take the first step and start saving money - so start today and save some money now! If you find it impossible to save money once you have it, consider having money deducted from your paycheck direct each month. This can be a great way to save money rapidly as once it is set up you will not notice it is being collected and your savings will grow with no more effort from you.
Tip – 8: Shop Wisely
Consider markets, superstores, farmer's markets, local shops, marts and stores. Anywhere is worth checking out to see if you can save money. Farmer's Markets can be particularly good places to save money. Typically you are buying direct from the producer of the product so the savings are passed on to you. Use your bulk buying strategy here - farmer's markets often offer opportunities to save money by buying larger quantities of staples, for instance potatoes, rice or corn. Save money and shop wisely.
Tip – 9: Eat in rather than out
This is a huge area where you can save money. A cup of coffee taken out could easily cost you twenty times (or more) what it would cost you to make it at home. So think before you drink when you are out. Eating is the same. Fast food restaurants are counting on you eating food that you perhaps don't really need at that time but buy just because it is quick. Why not wait until you get home and have a more nutritious meal and save money at the same time.
Tip – 10: Use less
This money saving tip is a lesson we all need to learn. We live in a consumer society where waste is a huge problem. If we could all use and consume less there would be less waste, less power consumption, and the benefits for you are saving money. Consider using less shampoo when you wash your hair, this may not mean washing your hair less effectively it means not flushing the excess shampoo and your money down the drain. What about saving on heating? Turn the thermostat down or put on extra clothes when you are cold. Turn off lights, the TV and the computer when they are not in use. Each little saving you make will build up and enable you to save money. Huge savings in energy can be made which will save you money and be good for our planet and the other people on it.
Why you need to set up savings with age?
You need to set up savings as you move on in life. At the beginning of your work life, you do well to even cover your expenses. At this point, a small but consistent amount of savings is essential. By the time you get married the need of money will become more, to fulfill these requirements you need to have huge income. The requirements often involve purchase items such as cars, new house, consumer durables, etc. This stage typically lasts till your mid-30s or early 40s, after which your income simply pulls away from your expenses. The reason is that expenses don't grow as fast at this stage and, in many cases, the growth slows down. This is also the time when your savings should be the maximum and get invested.
In your 50s, you could have to bear big expenses such as higher education and marriage of children, besides preparations for retirement. But the rise in your income with salary increments and investment income will let you continue saving. Need will change according to the different stages of life but the need of money will be there always. Only if you save enough money you will be able to meet all these needs when an emergency occurs.
Thumb rules for equity investing
There are three generally accepted thumb rule for equity investment, that are;
Thumb rule No. 1: 100 minus your age
If equity is the best bet for quick growth of our savings, then the logical question is how much should we invest in them either directly or through mutual funds?
The standard rule of thumb to determine your ideal equity exposure is a simple formula that suggests you subtract your age from 100. For example, if you are 35, then 100-35 or 65 per cent of your portfolio should be exposed to equity. While this can be taken as an indicative formula, it would not, of course, be applicable to everybody at every point in their lives. For example, if you are a 30-year-old and part of a double income family with one young child, you could put in 70 per cent of your investments into the market. However, if due to a sudden turn of events, you also have to provide for dependent parents and siblings, you should change your allocation and tweak down your equity exposure.
Thumb rule No. 2: Keep debt-equity proportion constant
If the age-based thumb rule does not apply to you, use a tactical allocation thumb rule. Here, you start off by investing, say, 60 per cent in equities and 40 per cent in debt, and continue keeping the ratio constant at all times. If you find at the end of the year that equities have done well, you should trim your equity exposure in the next year, the assumption being that there is likelihood of a market downturn. However, in times of a long-running bull market, like the one we have been witnessing, this strategy may not be ideal.
Thumb rule No. 3: Factor in the trend
This thumb rule on trend-based asset allocation is the opposite of the previous one. The assumption in this one is that if the stock markets are going up, then that is the trend of the cycle, and you should improve your equity exposure for the next year. Of course, trends could change and you might be trapped with a high equity exposure in a falling market.
How to follow the thumb rules
Since the thumb rules tend to contradict each other, you can adopt the following approach. Use the '100 minus age' formula if there is nothing remarkably different in your profile and the assumptions fit you. Keep that as the guiding number, and pull it upwards or downwards depending on your specific circumstances. If you are in your mid-30s and single, you could invest more than 70 per cent in equities. If you are 60 and do not see yourself retiring for another eight years, you could invest more than 40 per cent.
How to save money on your grocery bill
Following are the things to keep in mind while purchasing grocery.
The most important aspect of shopping is to plan. Start making a list of necessary items after checking your stock 2-3 days before heading out to shop. You can keep adding to this list till you set out to shop. However, be practical and realistic while making the list as there is no point in stocking ingredients that you may not use in the near future.
Shop once a week without children
Plan your meals for the week and stick to the list. Fewer trips to the shops mean fewer chances to load up on things you don't need. If you have ever had the experience of shopping at the end of the day with a screaming child, you know how easy it is to grab things quickly without checking prices. If you can, ask someone to watch the children, and go to the shops alone with your shopping list. You will have time to compare items and scan the walkways for those once-in-a-blue-moon bargain offers that are too good to miss. You will also have the satisfaction of value for the money you have paid.
Many colonies have a weekly bazaar where farmers directly bring their produce. These may be good places to buy fresh seasonal vegetables at bargain prices. Keep a watch for the sales and discount schemes in the market. Sometimes supermarkets or even your local departmental store will have a scheme on items. Some stores sell grocery items at wholesale prices. Make the effort to go there for your monthly grocery shopping. Avoid ordering grocery on the telephone as you are never sure of the expiry date, or if the items are decayed, old or the brand is overpriced.
Limit prepared foods
It is generally much cheaper to eat foods made from scratch than prepared foods. But use your common sense: there are many exceptions, especially for bargain shoppers. Some supermarkets have their own grocery brands and can be a real money-saver. However, they can be hit or miss on the taste scale. You will have to experiment to find the ones you like. Plan your meals well ahead so that you are not tempted to pick up a ready-to-serve meal. Homemade soups are a lot healthier for your family and easier on the pocket too. Avoid readymade packaged drinks. Instead, try making fresh fruit juices, lemonade, aam panna, bhel sherbet, lassi at home.
Think of meat as a side dish
The highest-cost item in many people's diets is almost certainly meat. Restrict your weekly servings of meat, chicken or fish. Introduce your family to vegetarian dishes. You might start by cutting meat out of a favourite dish, such as pizza, which tastes just as good without it. Watch out for meat alternatives, such as soya, tofu, or paneer. They make a tasty and healthy addition to any diet but they can often cost as much as red meat or chicken. When you do eat meat, choose recipes that spread the wealth. Meat-flavoured pasta and rice dishes are healthy and filling, and you can often get away with small portions of meat without sacrificing flavour.
Buy in bulk but carefully
There is a reason why thrifty people shop at cash-and-carry shops or buy in bulk; the prices really are better. But if you are not careful, you can also spend a lot on items you don't need or that go bad before you can eat them. Here are a few tips:
Put leftovers in the freezer, not the fridge
How many times have you put leftovers into the fridge and left them to languish because you either forget about them or didn't want to eat chicken two days in a row? Instead of throwing out good food that is turned into a science experiment in your fridge, get in the habit of putting leftovers in the freezer. That way you will know they will be fresh, when you want them again tomorrow.
Eat seasonal fruits and vegetables
Eat seasonal fruits and vegetables as they are low in cost and taste better than cold storage out-of-season food items. They also offer variety in your meals throughout the year. During season, when items are available in bulk, you can even freeze items, such as peas and carrots slices, and use them later. Seasonal fruits and vegetables can also be used to make juices, soups, jams, ice creams, and chutneys.
Beware of sales talk
Some companies adopt attractive marketing strategies to sell their products. Do not be excited into impulsively buying products that you do not need and are beyond your budget. Make the older children at home understand that every new product advertised on television need not be bought. However, you can treat them to a new product once a month.
Store well to retain freshness
Storing grocery, vegetables and fruits properly will keep them fresh longer. Coriander, mint, lettuce and other greens can be wrapped in newspaper or brown paper and stored in your fridge for a longer time. If you remove the stems of green chillies, they stay fresh for a longer time.
You can save a lot and yet be forced to be struggled when you need money. This slip between the cup and the lip can happen if you have not invested your savings in the appropriate order to give it the right opportunity to grow. On an average, Indians are saving more, but the savings are getting invested in lower risk-lower return options such as FDs and mandatory retirement funds such as provident fund and life insurance. Some investments of this sort happen by default. Employees' Provident Fund is a case in point, where 12 per cent of your basic pay gets stored away every month.
Besides, the risk averseness of many Indian investors, lack of awareness of options that bring higher returns, absence of quality financial advice and, sometimes, simply laziness makes people invest money in their savings account in fixed deposits of the same bank. If you have enough savings in productive avenues your responsibility is half done. Whenever a necessity arises you can directly take the money and fulfill the need.
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fully agreed with Sudeep.