We Indian’s are brought up and continuously emphasized by our parents and grand parents to save money for an uncertain tomorrow. It starts an early age, when one starts getting pocket money. The emphasis is made to plan out and use only the required amount and keep some for contingency purpose. As the person grows, the pocket money gets converted into self earning income from the vocation a person is engaged in. Once the income increases , the expense also go up. The lifestyle of individuals keep improving depending on the income levels of a person. To maintain the lifestyle the expenses also increase leading to lower savings. While it should be the other way round where in the savings should increase at a higher rate with increase in income levels.
We deal with several individuals and have observed that not most investors consider savings as income less expenses, while it should income less savings as expense. Most millennials today are not as futuristic as the need. There are a large number of people who are still struggling to manage their expenses and are dependent on loan from friends, credit card companies to meet their lifestyle. Individuals want to maintain their lifestyle and keep deferring their savings to a later date. It is important for people to understand that life is very dynamic i.e. things and situation change with time. A person may be jobless at short notice, there maybe a medical emergency in the family for which one may need to be admitted in a hospital. Hence savings become very important for such times and having the right amount of savings can help an individual handle the situation in a better manner.
For most millennial’s who do not think much about tomorrow, need to really understand one important thing that one day a person will stop earning. A salaried person will not get money all his life. Not enough efforts are made to save money. One has to realize that saving is very important and after saving ensuring that it is invested well to beat inflation. Procrastinating the plans for a later date may land a person at a place which maybe difficult to get out.
When there are some kind of savings that a family may possess then it is something that they can fall back upon in difficult times. It gives a peace of mind to an individual to meet uncertain times. We all are living in uncertain times and need to plan enough for any kind of contingencies. I have come across several top notch employees who had to face layoff at a short notice and rely on their savings. After working for several years , all of us want to get out of this rat race /corporate life at some point of time to wonder only If I had enough savings to retire today.
An individual can plan to create enough savings for himself such that one does not have to depend on their salaries/ business income to meet their livelihood, we can have enough savings to create a passive income and be financially independent. With passage of time the salary income needs to be well utilized, keeping a balance between savings and expense. If one is able to start early, then one can definitely aim to create a substantial source of passive income.
Generally, individuals start with small amount of loans and gradually get into a debt trap. One starts buying a car on loan, house on loan , furniture on loan, appliance on loan and almost everything possible through loan and eventually piling up debt for which most part of EMI goes into paying interest than paying principal. All this happens because of low levels of loan gradually mounting up.
Investing your hard earned savings into an instrument for a definite goal can help you a build a corpus which can be beyond imagination. It is a matter of habit which one must get started with and the wealth gets built automatically with the benefit of compounding. A small form of Systematic savings can benefit in creation of a corpus in crores.
Most corporate employees are not satisfied with their jobs and keep exploring opportunities to do something by themselves, having enough savings to support in the form of passive income can help you take bold decisions in life. When a person is financially independent taking such decisions become easier.
A good financial life is not about just spending money, but saving money sensibly! The above suggestions are all general and may suit each individual differently.
(The writer is a Chartered Accountant and qualified professional advising on wealth management to individuals, millennials and emerging HNIs. He can be reached at firstname.lastname@example.org. Views expressed are personal)
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