Updated: August 24, 2018 1:44:16 pm
Started a new job? Doesn’t the money just seem to disappear at the end of every month? Savings may not be a high priority when you’ve just started working, but when it comes to saving and investing, it’s always better to start early. And it’s best to start no matter how much you earn.
Take a look at few smart moves that can help you save money:
Make a budget
One common challenge that people face is controlling overspending and setting aside enough funds for savings. The key here is to save first, and then use the rest on other expenses. Divide your monthly income in a 70:30 ratio to allocate sufficient money for expenditure and savings. This will help you save in a disciplined manner. Budgeting for a few months will help you assess your expenses, understand your spending pattern and indicate where you are going overboard. You can review it from time to time to make changes.
Set goals and invest
Saving money without mapping it to a goal might not fetch effective returns at the right time. It’s better to list your important goals and then work towards achieving them. Have a time frame in mind, and figure which investment options best fit your goals. If you wish to buy a house in 10 years, opt for an equity mutual fund, or Equity Linked Savings Scheme (ELSS), to earn over 12 per cent returns in the long run. Estimate the amount of money you need at the end of the term to fulfil each dream, and calculate how much you would have to set aside every month to get there. Don’t forget to factor in inflation when you calculate the amount.
For long term goals such as retirement, you can start setting aside an amount as per your capacity and invest in mutual fund SIPs. Remember it’s never early to start. The longer the investment tenure, the bigger the fund you can accumulate. So even if you start with just Rs 2000 a month, you would be building a corpus worth Rs 70.6 lakh in 30 years if you were to get interest at 12 per cent a year. The amount you would have invested over that time would be Rs 7.2 lakh. And, SIPs allow you to start with an amount as small as Rs 500 per month. You can always increase your contribution once your income goes up.
Unlike the stock market, you don’t need to time the market here. The risk associated due to market fluctuations in mutual fund SIPs is mitigated in the long run through rupee-cost averaging.
Buy health insurance
This is not an investment, but much needed to protect you if you were to face a health emergency. Healthcare is expensive and you might be pressed for money to cover such expenses out of your pocket during medical emergencies. While you might be fit at this age and can ignore the need for insurance, emergencies occur without warning and you need to prepared to tackle it effectively. Also, the premium cost is lower at a younger age. Health insurance premiums offer you the additional benefit of tax saving under Section 80 (D).
Create an emergency fund
This one is for additional protection against unforeseen circumstances such as job loss, accident, any severe illness etc. In case of contingencies like these, an emergency fund works as an alternative source of income and will take care of your bills and rent payment, cover your insurance premiums and take care of your day-to-day expenses. The last thing you want to do at a time like this is borrow from as it will only increase your financial burden. You can prepare for such unforeseen circumstances by setting aside an amount every month to build a fund worth six months to 1 year of your income. You must keep this money in a liquid fund which can be easily accessed.