Saving is the only way to protect ourselves from financial crisis?

Why we want to save if we have fixed income as salary!!

It takes lot of hard work to budget and save the money?

Come on I will give simple convincing reason to save money in this post and don’t consider it as pass away tips , if you understand the deep meaning of following things you will end up save your money from today onwards.

3 reasons to saving money, all of your saving needs will be included in this 3 category with lot of sub categories in it.

1. Saving for Emergency Fund
2. Saving for Purchase
3. Saving for Wealth creation

1.Saving for Emergency Fund

Ant’s are great example for this. Ant’s are not only hard workers they are smart too, we have some lesson to learn from them.

There is a story of ant and grasshopper’s. Where grasshopper enjoying her summer, group of ant’s are busy with collecting food.

Grasshopper make fun of ants and enjoying its summer. There comes rainy days where ant is enjoying with saved foods and grasshopper is not having shelter and food.

So be an ant in saving and not the grasshopper , I know this is pre nursery story , but we forget this basic thing so I remember this here.

Change is the only thing in the world that never change.

None of us expected Covid-19 is going to be this worst in our life time still it is happening , same way accidents and incidents won’t ask our prior permission to occur.

So be ready to handle the emergency situation .In human history we faced few things that already  categorized with cause of reason.

An accident , job loss or natural disaster can bring irreversible change in your life. So if you save your money wisely during your good days , surely it will help during your bad days.

If we are not ready to save for our well being who else will do that?

How much you have to save as an emergency fund?

You can have your 6 month expense including EMI’s as emergency fund.

Expense includes rent, groceries, children school fees and few major things  and wants can be ignored here ,only keep needs as expense including EMI and bills.

You can keep emergency fund in FD and liquid funds so that you can easily liquidate during emergency.

Don’t ever invest your emergency fund in equities due to its volatility and stay away from lock in period bonds also, then you have to pay penalty/charges while coming out from that prematurely.

Start from 1,000/month if you don’t have enough budget to build your emergency fund.

Once you get big bonus or incentive from employer or in any other form ,keep aside for emergency fund. Once your emergency fund is there in place you can concentrate on investments.

Investing with out emergency fund can leads you to liquidate your investments with losses sometimes.

So always keep emergency fund as priority in your saving plan and please ensure to update the emergency fund time to time with out fail. For example today your expense might be 40k , it may increase in future. Sometimes it may even decrease if you close the loan or move to own house.

Benefits of having emergency fund

• No need to liquidate your investment prematurely.
• Can tackle the emergency situation with out worry.
• No need to borrow from anyone or anywhere.
• Can give you time to think and decide on next step. Basically gives stress less peaceful mind.
• You and your family will be in finance safe zone even after emergency situation.
• Can tackle medical emergency some extent.

2.Saving for Purchase

We are living in a era where purchasing is so easy with lot of EMI options. Because of this EMI traps , most of us don’t want to save for purchase, instead we will go and get the one which we cannot afford.

If you buy unnecessary things more in life, you may want to sell necessary things soon.

Delayed gratification gives us enough time to think about whether the product we are going buy is really needed or not. But in this age of eCommerce and others easy EMI things , we won’t take calculative measures instead we will buy immediately.

Lot of attractive offers are provided by product seller and promoters of product leads us to impulsive buying.

If you are having any product in EMI , then please understand the concept behind it. EMI also another big trap like credit card.

Once you will enter the world of EMI, it is not easy to come out from that. For a instance you might purchased some gadgets in EMI that will end shortly , but your mind will think to purchase Sofa on EMI and this is going to be never ending process.

After all the things home loan ,personal loan ,vehicle loan and what not ?. so most of us will pay installment in one or the other form.

You just close all the EMI and live a year with out EMI and see How your financial life looks.? May be you won’t enter in that dark zone again.

I know you will argue that Home loan EMI is good , because we are getting tax benefits and top of it will have our own home. Will discuss this later in this post.

Same home you can purchase after saving/investing the required amount in the later stage.

It is time to do some reverse engineering, instead of paying EMI. Save the required money and buy the things.

If you are planning to buy a gadget , instead of 6 month EMI ,save the money for next 6 month and buy that gadget.

In this way you will get time to rethink whether that gadget is really required and end of the 6th month you may get the same gadget for less cost also sometimes.

How to save for big purchases?

You can have your goal on big purchase with proper timeline and start saving smaller amounts on it.

If you have more time then need less money and vice versa.

The above scenario clearly shows the benefits of saving or investing the money for big purchase is better than getting the things in EMI.

If time is limited and you are planning  to purchase the things in short term then go for only RD or FD and not for investments.

For purchasing or construction of home also you can plan like above , because it is going to be life time big purchase.

Initially going to loan to purchase home gives happiness as you are going to have your own home. But as days pass you will feel the pain, most of your income is going out of your pocket as a expense for EMI and in most cases home loan is going to be 20 years of tenure.

Home loan is exceptional if you plan it properly. Click here to learn more about it.

A real wealth will generate passive income along with appreciation.

Need to remember one thing here loan, EMI and credit cards are liabilities that always takes money out from your pocket.

But the saving and investment with a goal will gives returns and corpus to your balance sheet and it will contribute to your income.

Not having liability or loans is the simple  way to became wealthy, that we cannot realize until or unless you will concentrate on your personal finance.

Benefits of saving for purchase

• No need to opt for loans and EMI, this gives stress free life.
• Delayed gratification stop us from impulsive buying.
• It will bring the habit of saving and investment.
• You will be master in your planning and budgeting it indirectly saves lot of money.

3.Saving for Wealth Creation

You can be rich without saving, but you cannot became wealthy person with out the habit of saving.

There is a difference between rich and wealthy person. Rich will be visible outside but most of the wealthy people won’t visible outside due to their frugal living.

Wealth can be of any form, income is not considered as wealth but your saving and investment is considered as wealth. Wealth will generate income and most of the time it is going to be passive income.

Wealth creation tips

Save yourself first

If bills will be priority for you , you will not became wealthy . So the first step here is to prioritize save yourself first rule. Even your income is low ,you can save a little for yourself and before allotting budget to expense allot it to saving.

Investment is key 

Retirement funds, children marriage ,buying house and vacation everything is possible with investment small during early stage. With out investment you cannot able to beat inflation.

Without saving you cannot invest your money, so start saving first.

Time creates wealth

Give enough time for your saving and investment to multiply itself with compounding effect. Compounding is the only way to multifold the wealth.

Enemies of wealth creation

Save ,invest and giving enough time will create more wealth with out any doubt.

But, Why still most of the people struggling to create wealth?. This is due to the factors of not having emergency fund and liquidating their investment shortly for purchasing or to meet their immediate needs.

This is the reason one should have have emergency fund along with term insurance and medical insurance.

Next they should categories their short, mid and long term goals and allotting fund to each things will help not to liquidate the investment in short.

Wealth creation is always should be in long term goal. In long run wealth will automatically bring passive income stream.

Wealth in real estate brings rental income ,but invest money and get corpus to build your home and rental home.

Stock investment also a wealth that bring dividend income ,but you need to give time to create a such corpus that will bring good passive income like rental income.

Even FD ,RD and saving bonds also give you interest income in long run.

So the key point of all the above things is to save yourself first.

If you are not saving for yourself , you need to work till your death.

You can think that closing your debts should be first priority, but saving should be first priority even though the percent is going to be small.

Obviously we need to close the debt ,but it is going to be an expense and end of the day for wealth creation you need to save first.

Your saving  purpose can be for closing the debt soon also but you have to plan accordingly.

Wealth creation process

Wealth can be create using saving and investment only, so part of our saving should go for wealth creation.

Wealth will compound in long run and gives passive income and it is having the power to act as retirement corpus ,can fulfill big purchases like own home etc..

Dividend income from stock, rental income from home , interest income from FD , income from own business etc… all are considered as passive income generating wealthy assets.

But main motto of wealth is generating passive income so that you don’t want to work for money, instead money will work for you.

Money saving blueprint gives you the idea of How to divide income and How saving can be further subdivided.

After you decided to save yourself first , concentrate on emergency funds ,so that the other 2 subdivision of saving will do its work even you will face emergency situation in your life.

If your emergency fund is in proper position then you can concentrate on saving for purchase and wealth creation.

Purchase can be classified as short, mid and long term according to your goals.

But wealth always take long term category, as it is going to be the most important one for our future.

You can start your wealth creation journey with less savings also , because you are going to give enough time for that to compound.

Whereas short term and mid term goals takes more part from savings after emergency fund.

If you delay your savings for wealth, it delay your passive income from wealth. You can start with small amount also, but fail to start leads your future finance self in danger.

And will discuss about wealth and its type in another post soon.

What is your take away from this post?

Will you classify the saving as mentioned above, or do you have any query on it?

Please let me know in the comment box.