Things to know before you start saving

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If you have recently started earning money and are looking for ways to deal with the cash in your pockets, this article is for you! We’ve all had old uncles and aunties in our family who sit us down to talk about the importance of ‘saving’. Sometimes their drilling works and you feel like leaving some residual money for future use just in case. But more often than not, all you want to do is get that pricey gaming station that you’ve always wanted.

Saving, however, is primarily the foundation of financial planning. Once the sweet scent of crisp notes starts enticing you, it should also bring along a sense of responsibility and command. In this article, we will give you all the info you need to start saving. Read on!

Creating a household budget: Are you completely aware of your income and expenses? If not, this is the first step to rest your money for safekeeping. Make a list of your incoming and outgoing money transfers, creating an intricate budget of your own. This will help you identify the surplus income so that you can cut down the extra spendings. One of the biggest advantages of having a household budget is the fact that you can make short-term and long-term financial goals for yourself. The budget will act as a map that will track your monthly progress to financial freedom!

How much to save? If the fear of not being able to save haunts you at night, it is preferable to start saving small fractions of your income initially. But how to determine what amount is right to save and when? This is where the household budget comes to your rescue again. With the budget by your side, you will know exactly how much you can potentially save and that should be your starting point. A very easy way is to design a thumb rule for yourself that divides your income into areas of expenditure. Say you keep 50% of the income to run your household (this includes bills, loans, taxes, etc). The remaining 30% can be spent on food and travel. Whatever’s left is your residual money and can be parked in for future use.

Pay off your debts well: Debts are literal weights on one’s chest. To savor your financial freedom to the fullest, it is important to get rid of debts as soon as possible. Debts have the tendency to eat into one’s income and are one of the biggest hurdles in truly saving your money. When deciding whether to save money or pay off the debts, it is advised to go for the latter.

Saving or Investing? While both of them are poles apart, the essence of the two practices is more or less the same. Saving is simply the process of safekeeping your money for future use, whereas the process of investing means using your money to purchase an entity that might generate extra revenue. It is necessary to understand the value of both the practices and eventually choose a stream that suits you the best.

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