Financial Discipline For The Beginners: 5 Rules To Make Consistent Effort In Saving

Savings, investing and budgeting are three main pillars of financial planning. Where savings and budgeting help maintain good discipline, investment results in multiplying that wealth. For an investor, it is important to have discipline as well as recognising lucrative investment options. Savings can help you in emergencies, retirement or systematically achieve goals and even buy luxury things like a car and house, etc. The economy is fluctuating and it can put you in a difficult spot as well. Inflation can leave you with a smaller disposable income. As discipline is one of the most important things in financial planning, consistency will help you achieve it. Today working adults have the philosophy of living every moment to the fullest and keeping the purse strings loose. Consistency comes from effort and thoughtful spending and thinking twice before spending on luxurious things.

There are several rules a beginner should follow to further instil that discipline in saving.

Savings are difficult in the beginning as one may think that this is the beginning of living a life and when the money starts flowing in you start thinking of things you can spend it on. To maintain equilibrium you can start by saving 10 per cent of your monthly income and make an investment every six months to multiply that amount and get more for further investment. This is a small effort that you can put towards your goal such as buying a car or a house. If you have an income of INR 50,000, consider saving 5,000 monthly and investing it in a monthly SIP, it will allow you to help you maintain consistency in savings and help you maintain good financial habits.

Awareness of financial planning for retirement has increased in recent years leading to people dreaming of retirement life and financially securing their future through investing, planning and saving. It is suggested to estimate your annual expenses and save a corpus 25 times your annual expenses at the time of retirement. As your expenses may change with age or important stages of life like marriage, family, or newly contracted disease, it is important to adjust this change along with inflation in that estimation for annual expenses to get an accurate figure.

Needs are basic necessities of life for survival such as food, clothes, shelter etc. Whereas wants are desires that may not even be necessary such as a car and entertainment etc. It is important to keep them balanced in order not to live too lavishly or not lavishly enough. For example, a shirt is a need for office wears which can be bought locally and last a considerable period of time whereas a shirt from Ralph Lauren is a want as it is much costlier for its purpose.

The 50/30/20 rule of budgeting is one of the famous rules to achieve a balance between wants needs and savings all at the same time. The rule advises you to allocate 50 per cent of your income after taxes to your needs; direct 30 per cent of that income towards your wants to maintain equilibrium and the last 20 per cent income should be put in savings. For example, if your income after taxes is Rs 50,000 allocate Rs 25,000 towards grocery and utilities, Rs 15,000 towards wants like travelling and entertainment, etc. While saving Rs 10, 000 every month. This will help you cover all your expenses without cutting back on necessities, and allow you to fulfil desires such as buying something expensive or luxurious while also thinking of future financial security and savings. 

An emergency fund is a type of fund that can help you sustain through an emergency which can be of any nature, a financial emergency can occur due to a medical mishap, loss of job or fraud, etc. It is suggested to have three times your monthly savings in an emergency fund to sustain you through an emergency period. For example, employment market is tough right now due to the job crunch and lack of employment. In such a circumstance, this emergency fund will help you buy up to three months to look for a new job or figure out something else for your employment.  In order to estimate your expenses factor in your family requirements as well as debts, health insurance etc to get an accurate figure and update it at major life stages like marriage, birth of a child etc.