Save first, spend later

Save first, spend later

Save first, spend later

“Don’t save what is left after spending; spend what is left after saving.” The founder of Berkshire Hathaway, Warren Buffet, once said. He isn’t known as the Oracle of Omaha for nothing. He certainly knows a thing or two more than a layman would, and as is evident from the ay he lives his life, investments and financial growth over the years, it would be a good idea to learn from one of the most financially successful entrepreneurs of our time. And he certainly does know about the importance of saving. Even this article’s thrust is about the importance of saving, useful investment tips, and how you need to save before you spend. The benefits of implementing basic financial planning tips are manifold. Some of them are:

Why save first, spend later?

• It prevents overspending
Instant gratification has become a trend in today’s age. A lot of people tend to overspend their hard-earned money on unnecessary things. As a result, you are left with little or no money to plan your investments. But you can curb this bad habit by saving first and then spending. These personal financial planning tips can allow you to invest more money and, consequently, reach your goals faster.

• You can plan your goals well
You may want to buy a house, a car, take an overseas trip and fund your child’s education. But if you can’t save enough, you’ll never be able to fulfil them. On the other hand, by saving first, you’ll have enough money to invest towards each life goal. This way, you won’t have to pick and choose your life goals.

• You can create an emergency fund
An emergency fund can take care of unplanned financial blows. But this fund is compromised if you spend before you save. Your expenses might blind you to the need of an emergency fund. But, such myopic vision can be corrected. If you save first, you have sufficient funds to build an emergency kitty. In fact, by the end of the year, you can build more than a month’s income by saving just 10% every month. For example, say your income is Rs 10, 000 per month and you save 10% of your income every month. This means you save Rs 1,000 every month and by the end of the year, you will have Rs 12,000 in your emergency fund. Hence, the amount will be more than your monthly salary.

• You can enjoy a longer investment tenure
Saving regularly for investing can also give you the benefit of compounding. For instance, if you invest Rs 1,000 every month at an interest rate of 10% for 30 years, you will receive Rs 22.6 lakh. This despite the fact that you saved Rs 3.6 lakh only. So, if you want to build your wealth, keep saving for a longer tenure. The higher the amount you save for investing, the higher the amount you’ll receive in the end. However, you can only achieve this if you save first and spend later.

To sum up

Warren Buffet was not born rich. He made his wealth by following the simple mantras of life, consistently and without fail, one of them being the golden rule of saving first and spending later. So, if you want to be like the Oracle himself, follow his principles. You wouldn’t need a financial advisor with these helpful family financial planning tips.

What next?
Once you start saving, you will have to make a financial calendar for yourself. That’s because every quarter has its own significance.

Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.


How goals change at different life stages

Changes are bound to happen in your life as you go through different stages in life. What you want now may not be the same as what you wanted ten years ago. People change, and so do their goals and aspirations. This is why planning and goal setting must be a part of one’s financial management.Setting financial goals is easy. In this article, let’s explore the different financial goals for life stages, financial goals and strategy, how financial goals change over time and why you need to plan accordingly for each life stage.Different life stagesOnce you start earning, the different stages in life can be listed in the following manner: Early career yearsThis stage includes people from the ages of 25-35. At this stage, you have just started working. You are fresh out of college and it’s probably the first time you have financial independence. In many cases, the income is generally not very high. Some of the most common financial goals at this stage include paying off college debt, buying a car and building savings for the future. A lot of people avoid thinking of financial planning at this stage. However, it is very important to be mindful of your income and expenses in order to avoid problems like debt traps.Career-building stageThis stage includes people from the ages of 35-50. The income, expenditure and overall lifestyle of individuals would have changed dramatically compared to the previous life stage. During these years, people are looking to improve their careers. Additional responsibilities come in the form of family and children. If you were looking to buy furnishings for your rented house in the previous life stage, you are probably more interested in buying a house itself during this stage. Other goals include: a) Higher savings and investments for the futureb) Adequate life and health insurance plans for the entire family c) Greater contribution towards retirement fundd) Repayment of EMIs on home loan, vehicle loan etc.Pre-retirement years This stage includes people from the ages of 50-60. As retirement approaches, the income of people reaches peak levels. As a result, they generally try to use their wealth for helping the family. At this stage in life, the main financial goals are:a) Paying for their kids’ college education and wedding costs b) Repayment of all their debt: It is important to repay all your debts before you retirec) Building a retirement kitty: Higher savings means greater financial independence during retirementd) Reassessment of asset allocation: It is time to slowly transfer funds from high-risk investments to safer avenues Post-retirement yearsThis stage includes people who are above 60. During this stage in life, you may not have a steady source of income. However, if health supports, you can still earn money if you wish. Many people start new businesses and indulge in part-time jobs during the early stages of retirement. Other people may want a more laidback lifestyle. They travel to new places and pick up new hobbies to spend the time.Proper management of savings and estate planning are some of the important financial goals at this stage in life.ConclusionChange is a natural part of life. But as an individual, it is very important to accommodate these changes financially. As you grow older, your life goals and financial goals change. That’s why it is necessary to monitor your goals from time to time and make the required changes in your financial plan. What next?It is natural to have different (and opposing) financial goals at each life stage. But which goal should be given the priority? Find out in the next article about the importance of prioritising goals.   DisclaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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Have you made your financial calendar yet?

IntroductionNew Year is around the corner. While you might be busy changing calendars, have you thought about having a financial calendar? Every year has a calendar which shows the months, days and dates and you plan your affairs around that calendar. What about a financial calendar? Do you plan your finances around one?Many of you might not have heard about a financial calendar. A financial calendar is one which is useful for your financial planning. It guides you on how to save and spend your income in different weeks of the month. If you create your calendar and follow it, you could utilize your income in the best possible way, both in terms of meeting your expenses and creating investments. Do you have any idea on making a financial calendar?Making a financial calendar is simple. You just have to plan your finances around key financial events at the right time. Let’s see how– Month-wise calendarFollowing is a quarter-wise financial calendar for your financial planning - • April to June – In the new financial year, it is time to take stock of your investments and plan for new ones. First, invest in insurance plans. Besides creating an emergency fund you can also save tax on your next tax return. If you have loans continue servicing them. Also, figure your tentative taxable income and plan for tax-saving investments. • July to September – Continue with your investments. If you plan on taking a vacation in the next quarter you should start saving for it. This would ensure that your vacation does not eat into your budget as you would be prepared. • October to December – This is the quarter which is filled with festivities. Festivities entail new purchases and gifts. You should create funds for any big-ticket purchases which you intend to make in Diwali or New Year. Also, a fund is required for New Year celebrations. Towards the end of the year you should start planning for investing in tax-saving instruments. • January to March – This is the first quarter of the New Year and the last quarter of the financial year. Tax planning takes centre-stage in this quarter. Analyse your income earned in the last nine months and also forecast the income for the quarter. Invest in Section 80C instruments to save tax on up to Rs.2 lakh of your income. Buy health insurance plans if you haven’t bought one and save tax under Section 80D. (To know more tax-saving options, click here)Planning for each monthAfter you have planned for the different quarters, you can plan for each week of a month in the following way - • First week of the monthFollow the Warren Buffet principle - Save first, spend later. As soon as you get your income, invest at least 30% of it in different avenues. Of this investment, 10% should be put aside in an emergency fund. After having saved, meet the urgent expenses. Pay off your household expenses and set aside lump sum money for daily lifestyle expenses. • Second week of the monthOnce you have met your household expenses, the next 30% of your income should be used for paying off your debts. Pay the EMIs scheduled and make sure there is no default. Your child’s education fees should also be met in this week.• Third week of the monthPay your bills for credit card, mobile and other utility bills. If you plan on making big-ticket purchases, schedule it for the last week and make provisions for them.• Fourth week of the monthAssess the remaining income in your hand. If all your goals are invested in, try and prepay your loans. If you are thinking of making a big purchase in the coming months, create a fund for the purchase. Points to keep in mind Big budget purchases should be planned in advance Tax saving should be done in regular investments throughout the year. Don’t plan your taxes only in March. When investing, choose tax-saving instruments and your tax planning would be taken care of. Plan for vacations and unforeseen bigger expenses too (like gifting, buying a luxury, etc.) Automate your savings through ECS facility Factor in inflation in your budgetary planning ConclusionCreate a financial calendar and you would know how to utilize your income in the best possible way. Don’t ignore tax planning though. Your investments should be in tax-saving avenues which reduce your taxable income. So, use the above-mentioned knowledge and plan your calendar. DisclaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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