How to Start Saving Money?

How to Start Saving Money?

This is an important question and many people are struggling to get an answer for it. Honestly, the answer for this question is not going to be the same for everybody. This is because financially, every individual is different. Some people earn much, but spend less and save more. Whereas some others spend as much as they earn and save nothing. We can also see people who earn too much and spend too much and save little. There could be many more examples like these, but we will discuss about them who have no savings at all.

How Much to Save?

Money has to be saved. It would be nice if we could save 15% of our monthly income. Most people cannot save that much for various reasons. Some people save 10%, some 5% and some even lower: some people have no savings at all.

There are no particular rules to follow for them who are financially sound, but for them who have not yet started, the golden rule is to begin by saving at least 1% of their monthly income if they can't afford to save more. 1% of monthly income may seem negligible and it is arguably the least amount of money, but it helps to start saving. If somebody couldn't save money even with a reasonable income, it indicates high expenditure. If expenditures remain uncontrolled, saving money won't be easy. To make it possible, atleast one percent of the earned money should be deliberately saved.

Some Examples of Saving 1% from Income.

Saving 1% of income is not a difficult task and almost everybody can do it, but most people would not entertain this idea because the money saved in this manner would be negligible. Many people would disagree with this idea, because it is as good as saving nothing.

It is true that saving 1% is not a wonderful idea, but it certainly will be helpful for them whose accounts are empty. Here are three examples to show this.

EXAMPLE 1. Suppose, a person earns Rs. 10,000/- per month as salary. If he has not started saving, he should set aside Rs. 100/- (1 percent of Rs. 10,000) and save it in his savings bank account. This should be followed every month. In one year, he will save Rs. 1,200/- and will earn a small amount as interest on it. This should encourage him to save more money in his account. This is how his savings will grow.

EXAMPLE 2. Professionals have a different story. Even though they have good potential for earning, they may have difficulties in saving because most professionals don't have a fixed income. A professional may earn Rs. 50,000/- in one month, but it could be less the next month. As income is variable for a professional, the 1% saving method may not be appropriate. However, if a professional has no savings for whatever reason, he may try this 1% method to gradually build balance in his account.

EXAMPLE 3. Businessmen are similar to professionals in generating income. Both have variable income. A businessman may do good business in a month and could earn lots of money, but the momentum may not continue the following months. Like professionals, the 1% method is not enough for businessmen, but if they have no savings, this would be a good way to begin.

Why One Percent?

There are people who have bank accounts with no money. Their balance will be zero and this won't change for months, if not years. If balance increases to some extent in some months, it won't remain so for too long; it will go down. If the downward trend is not arrested, it will become zero again.

This is where the 1% rule for saving is useful because 1% is always better than zero. The 1% rule should be followed even when there is no money to save. This can be done by deliberately setting aside 1% of income for saving by sacrificing some needs. This has to be done religiously every month and the money so saved should be allowed to grow.

Is One Percent Enough?

No, it is not enough. Even if we start with 1%, it should be gradually increased to 2%, 3%, 5% and so on depending upon the availability of cash. We have to ensure that, every month, our contribution to saving should not go below 1% of our income.

People who can afford to save more, should do so without any hesitation, because hesitations and doubts lead to procrastination which kills every good idea. Experts in economics cherish the idea of saving maximum money and spending the rest. However, as this is not possible for everybody, the alternate idea is to save what we can, and 1% of income is always achievable.

Saving cannot be fully taught or professed; it has to be learned and practised by ourselves. Saving is the result of practice and like all good practices, it has to be developed and nurtured as a habit. Saving is a systematic process and it should be practised diligently to get results. Initially, the results won't be encouraging, but consistency brings improvements.

Money attracts money. If you save something, it will help you to save more. When you develop this habit, you start to improve your savings and this is the secret behind most rich people. The rich people we see today started saving long before, because they knew the value of money and the importance of saving.

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The previous post was on tax.

The next post is about fixed deposit.

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