Ashish is employed as a software developer in a large MNC. He belongs to a middle class family where his father keeps telling him the stories of olden days, how he build his life time savings by spending less and living simple. On the other side, he watches his friends and colleagues going on a holidays or buying new cars. Not to surprise of anyone, such situation will make anyone think…So what should I do with money – Save or spend. This dilemma keeps him confused on savings front. He keeps reading journal and sites, meeting financial advisers and never misses TV channels to find answer to his one of the most important question of his life.
Not only Ashish, almost all of us start looking for answer whenever such thought provoking question comes. Let us try to raise the curtain from this subject with an objective approach. So solution starts with the monthly earning coming to our disposable…
You need specific amount for your monthly expense which comes foremost. It may be for your groceries, utility bills, rentals or EMIs, school fees of your children etc. Also an amount should be added to expense budget for the payment of various insurance plans. It will give you a peace of mind and will help you to concentrate on your life goals. You may think of saving only if you have an amount left (also called as disposable income) after such expenses.
Then comes the priority for saving money for time bound essential goals like higher education of children, retirement etc. Such requirements are compulsory in nature and requires full attention from the beginning. Savings for such life goals may also be fulfilled from savings due to tax planning Like EPF, PPF etc. If required, one should not think twice to reduce current expenses where the savings amount, meant for important cause, is felt insufficient.
Thereafter, the thought through amount should be allocated to compulsory goals which are not time bound like buying a house etc. The amount categorized for this goal should be decided with approximation, in terms of today’s prices, of expense amount to fulfill this goal. Any unplanned inflows arising in between should be directly allocated to this corpus as it will prepone the fulfillment of this goal.
If you are still have some money left, it means that either you are thinking very conservatively or you really are a well to do person. This is a situation where you can dare to dream big. Remember, big dreams are not fulfilled with savings, but investments. So your money should work fast towards reaching your goal as such you may invest this money in riskier assets like equities, real estate etc. You can also spend this money to avail luxury and comfort but remember such comforts are good only if you can maintain them throughout your life. Any reduction in luxurious articles is never considered a good situation. A gradual rise in comfort is always appreciated and is required also with increasing age and status in the society.
Hope this clears all your doubts or confusion.
Be always clear that you need to manage your finances before it start managing your life.
All the best!!!