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Sunday, 29 October 2017

Is saving too hard to Start?

Hi friends, today I start discussion with a simple question as “Is saving too hard to start?” Most of the time, the hardest thing about saving money is just getting started. And once you start I bet you that you will not stop it, provided if you choose the right financial vehicle for it to grow. Money saving is just a habit to achieve some financial goals. Financial goal may be short term as well as long term. Here are some examples of short- and long-term goals:

Short-term (1–3 years)
  • Buying electronic gadgets.
  • Vacation
  • Down payment for a car or Home

Long-term (4+ years)
  • Own Retirement
  • Child’s education and marriage

Step 1: Track all your expenses: Tracking the expenses is the first and the most important step. We must track all our expenses. All means all. For this you may either use your bank/Credit card statements or any third party mobile app or even do it manually. Once you have your data, organize the numbers by categories, such as gas, groceries and mortgage, and total each amount. Try to outline the over or unnecessary expanding. Try to do this activity at least for 3 months.

Step 2: Make a budget: Now you have an idea of your spending. Now create budgets for each category of expenses. Try to cut the budget for unnecessary items. Please keep budget for items as entertainment and dining out. If you find difficult to budget for all items outlined in step 1 then it might be time to cut back.  

 Step 3: Plan on saving money: Create a Budget for savings also it if not outlined in step 1. Allocate at least 10 to 15 % of you income. 30% is good enough. But if you don’t see this much in savings category then start to trim down the budget form all other categories which have some unnecessary items.

Step 4: Set Your Goals and priorities: Setting the goal and priorities also a very important step. Without this you can’t get the conviction to save for longer term. Can you imagine a football match without a goal post? The goals might be short term or long term as we discussed above. Please consider the future cost for any goal because value of money will fall due to inflation.

Step 5: Choose right financial vehicle to invest: Now you have your fund in your hand to achieve a goal. But money sitting ideal in a bank account losses its value so we need to invest this money to protect its value by appreciation. You should not invest your money with a locking period say 5 years for a goal targeted in 3 years. For short term goal capital protection should be the aim and for longer term goal we should go for capital appreciation.

As I said earlier that Money saving is just a habit so investment must be automated as much as possible. Automated transfers are a great way to save money since you don’t have to think about it and it generally reduces the temptation to spend the money instead. It brings the discipline in our financial life.

OLD Formula:

NEW Formula

Nothing big difference in term of numbers but there is huge difference in real life.

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