Simple Rules To Maximise Your Savings

Without savings, there is no money management. In fact, savings is the starting point for all future financial activities, as only when adequate amounts are saved will they be available for investing. But saving does not mean that you keep an amount aside regularly and then forget about it. Since savings is for a specific purpose, it is very important that the money saved grows at a desired pace so as to meet the requirement. In short, the success of your saving activity depends upon how effectively you plan and channel your savings.

Rajiv, 30, takes home around Rs 46,000 a month. Though he has been working since the last two years, his savings are zero. He has been blowing his entire salary till recently, but now he is keen on changing his ways and likes to save some funds for a rainy day. He wants to make saving a part of his daily activity so that there is no problem in continuing with it.

Analysis

In the above case, Rajiv has realised his mistake and now wants to make amends. But he also knows that saving is not an easy task because a lot of distractions can lead to the available amounts being spent elsewhere. One of the main reasons why Rajiv could not save anything is due to his inaction. Over the past two years he just let things drift which led to the income being frittered away.

If Rajiv does not want this to happen again, he must take the following steps:

1. Start saving with a specific purpose in mind or to achieve certain objectives
   This would prevent the savings being used elsewhere as the funds are earmarked for a specific purpose.
2. Stick to the basic rule of compulsory savings

   If there is an option given to Rajiv to save Rs 15,000 then several points come into play.

   1. He might think that the amount is too much,
   2. He might forget to transfer the money, or
   3. He might postpone it for other important expense.

   On the other hand, if he decides that a compulsory savings of Rs 15,000 a month is to be done by transferring the amount to a mutual fund straight from his salary, then he can achieve his objectives easily.

3. Ensure that the amount is diverted to a specific area

   If the amount saved is getting invested straight in a mutual fund through a systematic investment plan, then Rajiv will be forced to ensure that this amount is available every month. Also, properly timing the transfer so that the movement follows the receipt of the money will also aid in the process.

What system should Rajiv adopt for saving?

The first and foremost thing Rajiv needs to do is to choose a saving system that is comfortable and not too difficult to implement. This will be possible when a few factors are matched.
For example, the savings has to correspond to the inflow of income. If the payment is received once a month then setting a monthly savings target and process would be better rather than a fortnightly one where the chances of missing the target is higher.

• Rajiv should decide on the total amount of savings of his income (take home amount).
• Next, he should allocate the total amount to various areas along with the actual mode of transfer.

It will be like this: If there is a total savings of Rs 15,000 a month, out of this Rs 5,000 will go to Rajiv's PPF account and Rs 10,000 to an equity-oriented mutual fund.

• A specific sum should be directed towards the savings each time and this amount should not be too low or too high.

So in Rajiv's case, Rs 15,000 is nearly one-third of his total income and is hence manageable.

1. If this amount was too low, say, just Rs 5,000, then he could not have saved much.
2. If the target was Rs 30,000 then this would not have left much money in his hands

Also, some change in the outside environment would require Rajiv to be flexible. Thus the system should also have an arrangement whereby the savings can be increased in the future to meet requirements arising with additional developments in his life. The entire savings process should be flexible. For example, next year if the PPF scheme becomes unviable then Rajiv should be able to switch that investment to another area.