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How important is savings in our daily lives

Updated: Sep 30, 2019, 05.14 PM IST
Savings in our daily lives

“If you buy things you do not need, soon you will have to sell things you need”

As grim as this may sound, Warren Buffet hit the nail on the head when he said this to emphasize the importance of savings. A simple fact that is often overlooked is that the time to save money is when you actually have some. Alas, people realize this too late only after their income stream has dried down and financial resources have depleted.

Many of us would have read Aesop’s fables in our childhood. “The Ant and the grasshopper”, one of the memorable fables from the series, aptly puts forth the importance of savings. The fable concerns a grasshopper that has spent the summer singing while the ant worked laboriously to store up food for winter. The grasshopper laughs at the ant and asks her to not toil away. When winter arrives, the grasshopper finds itself dying of hunger while the ant who has worked hard and planned for the winter manages to survive. The take away lesson from this fable is that it’s always wise to plan ahead. Although, many of us would have read this fable ourselves or would have read it out for our kids, most of us do not apply this in our day to day lives.

The continuous struggle between instant gratification on one hand vis-à-vis long term happiness invariably ends in favour of us seeking instant gratification, more often than not. Our brain is programmed to respond favorably to short term happiness over long term goals. To make matters worse, our consumer driven society encourages this and provides countless avenues for instant gratification. From one click shopping and credit card offers to bright neon billboards screaming out brand slogans and offers from rooftops, we are constantly bombarded with marketing. There is nothing wrong with buying things as long we genuinely need them and can afford them without jeopardizing our future. Most people err on this count and end up splurging beyond their means.

A few tips to enable savings are as under:

  • Restrict your credit card limit.
  • Walk to a mall with a list and try and stick to it.
  • Avoid leverage (loan), to the extent possible.
  • Save before you spend.
  • Make a household budget and study variance
  • For youngsters, do not get influenced by peer pressure.
Once we actually start saving, we immediately face a curve ball question I.e. How much should we save? As simple as this question may sound, quantifying the amount of savings is easier said than done. While the exact amount that one needs to save may vary as per existing net worth and financial goals; a simple rule of thumb that one can use is to save one’s age i.e. if you are 25 save 25% of your income. This implies that you save more as you grow older. Although, this is a rough thumb rule, the logic behind it is that as you age, your time horizon to retirement reduces. Secondly, your income increases over the years, enabling you to save a higher % of your income as you grow older.

The habit of savings is a great teacher in itself. It teaches virtues like self restraint, discipline and foresight as saving for future goals involves a trade off in itself since you forego spending and buying things today in order to be financially secure in the future. Learning to save is a prerequisite for wealth creation as one can invest and create wealth only if one is able to save in the first place. Many people fret about not earning enough when what they are not good at is saving and investing. As the old adage goes money is a terrible master but an excellent servant. You must gain control over your money or the lack of it will control you forever.

This article has been written by Ms. Shyamali Basu, Senior Vice President & Head - Products & Marketing, HDFC Asset Management Co. Ltd.

"The opinions expressed in this article are those of the author alone and not of HDFC AMC, and should not be regarded as investment advice. Investors should obtain their own independent advice before taking a decision to invest in any securities."


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