Saving in simple terms is keeping the earned money aside for future needs or to attain financial freedom.
Formula to Save
Saving is the only way to attain financial freedom, but most of us thinks saving in the following way
Saving = Income – Expense
Mostly we will get the paycheck and will think let us take care of our expense i.e. bills, rent etc.. and will save the remaining amount, but end of the day that won’t happen will end of up with spending all the money or most of the money.
Formula for correct saving will be like below
Expense=Income – Saving
Here we no need to save big part of our income , even 10 % of salary can be kept aside, “start early” is mantra of saving and investment.
Investment will follow saving with out this habit one cannot invest.
Scenario:
Mr. Ranjith salary is Rs.10,000 and easily he can be keep Rs.1000 aside and then he can spend Rs.9000 for his needs and wants. But if he thinks will save more money after expense , probably that won’t happen .He will spend all the money or during month end he may need more money.
Important things in Saving
- Have separate account for saving – This will bring discipline not to touch the saved amount, if it is salary account we will end up spending whole money, after salary transfer the amount to save it account. We need 3 accounts Save it , Salary, Spend it account , we will discuss about this at later point, as of now please keep Save it account separately. Human psychology is that we won’t touch the things we kept away from reach.
- Forget the saved money – It is difficult to do this, but we have to make this habit. But the same can be used for emergency purpose but we have to build emergency fund on top of saving, we will discuss about this later.