Ever thought about how much life would change if you could just get a handle on your savings? That’s the power of savings.
Do you know what the statistics say, building a home is a dream and a major financial goal for many. On Average 60% of home purchases are financed through home loans, this highlights the reliance on credit to achieve the goal. On the other hand, 40% of Indians somehow end up building their houses through savings, and 70% of adults do not have an emergency fund. It does not imply that we don’t have savings, rather we do not know how to save money in a proper way.
Let’s face it—saving money can feel challenging, almost like trying to climb a mountain. But it doesn’t need to be like that. Achieving financial security is more attainable than you think. We can do it with some discipline and smart strategies. We’re not suggesting that the answer to everything is savings (it’s not), but think that you’re able to buy a home without stressing down payment.
Saving money is not a lifetime of sacrifice; rather, it is about making better choices with existing resources, and understanding what we want and how much and how long to save. I believe we have tackled some of the things on your mind and also some of your confusion. So now, let’s own it and jump onto “How you can save your money for Future Financial Goals”.
It’s about getting money in order and making it work toward a better future. So here is how to spot and set your financial goals:
- What Is a “Big Financial Goal” So the first thing to do is to plan out what you are looking to accomplish. A “big financial goal” could be anything that you need to save for. This may be for a new home, starting a business, or living in retirement. The important thing is to have a well-defined vision of what you are going for.
- Some financial goals are relatively trivial. There are some that you can accomplish in a year or two which I call, short-term. While others are very much longer-term, perhaps involving years or even decades of work. That’s how you can identify between the both:
- Short-Term Goals: This can be things like saving up for an emergency fund, or paying off a modest debt. This tends to be shorter-term objectives that can be accomplished with a more concentrated effort.
- Long-Term Goals: These could include purchasing a house, paying for your kids͛ college tuition, or saving for retirement. They are usually longer-term and more strategic in nature.
3. SMART Goals: After you have discovered your goals, it is time to set SMART ones: Specific, Measurable, Achievable, Relevant, and Time-bound. For example:
- Specific: Clearly define what you want to achieve. For example, instead of saying “I want to save money,” say “I want to save 5,00,000 for a down payment on a house.”
4. Prioritize the Goal: Most likely you will have multiple goals so the first one is to prioritize the Goal! Prioritizing them will save you time and resources for things that matter as much. Do yourself a favor and have a look at what goals are now top priorities in your life and focus on those first. Saving for an emergency fund, for example, would have precedence over saving to go on that luxury trip.
Focus on repaying current high-interest debt should be the No. 1 financial priority Again, particularly credit card debt, if you have a high-interest debt to pay off, saving might do less for you than paying off the debt, and is in fact usually so much less good for you; assuming of course your interest on your debt is much higher than what you’re going to make from savings.
Low-Interest Savings vs High-Interest Debt: The difference between an interest-free credit card and a savings account earning 1% interest is very high (17%) So, to go through an example with you.
For example: You have a 50,000 balance in credit card debt at an interest rate of 17% p.a. Interest rates are charged through this period too, meaning your total debt will snowball if you continue to pay only the minimum amount due. Or you have 50,000 in your savings account earning just 1% interest per annum. Then when interest on your debt is lower than the return on savings, suddenly it makes a lot more sense to be putting cash in the bank and freaking out less about having gotten yourself into debt.
Most of us confused of, how to track the debt and pay it fast to lead a healthy financial life. To know more about it, dive deep into “Debt Detox: Strategies to Analyze and Lower Your Debt”
Knowing where you stand is one of the most important actions to take when planning your future financial objectives. This helps serve as a baseline for your savings planner that can help you work towards your goals. Let’s break it down:
The first step is to examine the state of your finances.
- Keep track of your income: You might be wondering, how to actually start keeping track of my income from what sources. Those are all of your earnings: wage, salary, commissions, side gig income, rent. Understanding your overall income allows you to know how much money you have each month.
- Organize Your Expenses: Divide your monthly expenses into categories like housing, utilities, food, transportation, insurance wellness, and fun. Alternatively, if you are going to track your spending for a few months prior, you will come to understand how your money moves in and out of specific categories, and which ones are over budget.
- Analyze Your Debt: Put together a list of all your debts with their respective balances, interest rates, and minimum payments. When you know what your debt situation looks like, you will be able to prioritize which debts to pay off first, especially the high-interest loans.
After understanding everything about your financial condition, the next step is to think of a savings plan. Here’s how to do it:
Here comes the second step after examining your state of your finance.
- Establish Specific Financial Objectives: An emergency fund, a down payment on a house, retirement, or perhaps doing something like taking a vacation.
- Determine How Much You Need to Save: Work out how much you need to save for each goal. For example, you want to save 5 lakhs as a down payment on a house in five years, you need to save 1 lakh every year or approximately 8,333 every month.
A financial safety net, an emergency fund is the money you set aside for any unforeseen expenses such as a medical bill or car repairs. But target saving somewhere between 3–6 months’ worth of living expenses; if you are seeing a patches income stream, go for up to 12 months! Begin modestly, automate your savings, and whenever you receive unexpected income like tax refunds, put it in this fund. Maintain it in a separate savings account, easy to access right away, and ensure you replace any funds you might end up spending. This way, you always have an ace up your sleeve when life throws the next curveball.
Investing is an extremely useful method by which you can grow and manage your wealth, but also achieve your financial goals. A little info on the fundamentals and some tactics:
Where you can invest:
- Equities: Shares in a company They provide a substantial yield of possible return, but with greater risk. Price can vary wildly.
- Bond: A loan to a government or business entity. Bonds may be less risky than stocks, but they usually also provide lower returns. They pay regular interest.
- Mutual funds: Pooled funds from many investors to buy a diversified portfolio of stocks, bonds, or other securities. Managed by professionals, mutual funds are a good way to diversify investments.
To know more about investments and it’s broad categories. Do check our blog “Journey into Investing”
Knowing how to be financially literate is important for some of the most vital decisions in life such as budgeting, investing, and managing debt. It allows you to adjust well to financial changes, be able to identify scams, and avoid them or build wealth for a long time. Financial education is a significant step toward bettering financial health, avoiding mistakes that can end up costing you big bucks, and being a role model for the next generation. Invest in continuous financial learning to be ready for the future. Keep Learning, educate yourself, stay cautious, and take charge of the finances.
