Start on a savings plan

A man shows balloons in the colours of the Indian flag to his child at a market in Chandigarh August 15, 2008.

In these tough times, it is especially important for you to consider where your hard-earned money is going; financial security is the key in today's unpredictable world. And the first step towards gaining that security is to have a saving plan.

Do you have money put away for a rainy day? How will you manage if there's a family emergency? What about a down payment for a home, or a fund for higher education, or retirement? Do you have loans to repay?

Still not convinced? Then ask yourself why you need to save. The answer's really very simple: so that your money can start earning money, and work towards reducing the effort you put in every day.

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START SAVING NOW: HERE'S HOW

You might wonder how to begin saving if your income is already over-committed. Efficiency and discipline are the answers.

You need to first find out where your income is going. Maintain a diary for the month, noting down everything you spend on. You will be surprised at the amount of random purchases you make - from coffee breaks to grocery bills. These are the best places to start trimming.

Then, make a budget. This isn't as difficult as you think. All a budget does is create a plan for spending, by stating expenses and goals. Make sure to cover fixed and regular expenses such as mortgage or rent, utility payments, and car or loan/credit card payments. Then set limits on necessities like groceries and clothing, as well as nice-to-haves like entertainment and travel. It's also important at this stage to factor in a savings amount.

Now, your first priority is an emergency fund, if you don't already have one in place. And the easiest way to do this is to have the amount deducted from your salary every month and put into a Fixed or Recurring Deposit. Give yourself a pat on the back if you find yourself adding that little extra to your fund because you managed to save a little more this month. You might find it easier to stay within budget if you use cash or debit cards for the necessities and frills.

As your emergency fund accumulates, your next task is to find more money for savings and even investment. Begin by paying off your credit cards. If you spend a little time examining your monthly statements, you will be amazed to see how much money you're losing just by way of interest!

SAVING VS INVESTING

At this point, we need to address the differences between saving and investing.

Savings provide for emergencies and fund specific purchases in the near future (within two years). The primary goal is to store funds and keep them safe. However, you invest to increase net worth and work toward long-term goals. Also realise that investing involves risk, where you could lose some of your original investment. Only consider an investment plan when you have in place an emergency fund, insurance, control over credit use, and a retirement plan.

IN THE LONG RUN

Now, consider making a long-range savings and investment plan. When beginning to plan for investments, consider your goals, the amount of time you will be able to spend on nurturing these investments, how much you know about the funds, how much money you have to invest, whether you can tolerate risk, and handle loss. Remember that your ultimate goal is a financially secure future for you and your family.

If you look back over all that we've discussed so far, you will realise that we've told you how to begin saving money, in small, manageable chunks. The final objective might be to set aside enough for you to retire so that you don't have to work another day, but your immediate goal is to start the process and become habituated, so that saving becomes a way of life, and a chance to improve how you live.

DISCLAIMER

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