- The New Year calls for new steps to improve your finances
- Learn, scrutinize, and then zero-in on your savings options
- Accumulate wealth and spend wisely
A new year calls for new resolutions and new steps to improve your finances. Those who resolve to improve their spending habits at the beginning of the year, save more than those, who do not. With financial prudence, comes greater wealth accumulation. While simply, ‘saving’ is guaranteed to give you returns, they are comparatively lower than the potential returns that re-investment can bring.
Here are a few things to keep in mind before you start investing or building your savings in the new year:
- Everything starts with ‘knowledge’
There are several investment opportunities that exist in the market – endowment and money back plans, mutual funds, recurring deposits, fixed deposits, etc. The first step is knowing what each of these investment channels entail. When you have clarity on the benefits offered, align them with your investment amount to maximize savings and returns.
Ascertain your target corpus and calculate your monthly investment accordingly. Financial calculators available online can help you plan your savings chart.
Smart Tip: Ideally, you should follow the rule of thirds when allocating your finances, i.e., one-third of your income for the past (or to repay loans/debts), one-third for the future (investment/ savings/ life cover), and the remaining one-third for the present to fulfil your daily needs.
- God is in the detail
Track every detail of your financial expenses. Calculate your fixed expenses and chalk out the unplanned or frivolous expenses that could potentially arise and disrupt your monthly budget. Document every rupee spent and make a pool for emergency expenses, which by definition, are always unplanned.
There are many daily expense tracker apps and software that could aid you in maintaining your budget with reports and visual graphs.
- Plan all major purchases
Avoid impulse purchases as they can severely dent your budgeting. Major purchases such as that of a new vehicle, house, electronics, etc., require a lot of money upfront (unless purchase is made through EMIs). This money can be made available after putting aside a certain amount from your monthly income, over a period of time.
Gradually as the corpus increases, you will be able to make that purchase. On the other hand impulse purchases deviate from the plan and dig into the resources that could have been used to buy these essentials.
- From drops to an ocean
Little steps add up to make a giant stride. Small investments over the years can add up to provide a hefty amount at the time of maturity. There are many Systematic Investment Plans (SIP) to invest in, you can sign up for auto-debit from the savings bank accounts wherein you authorize the financial service provider (your insurer, mutual fund company, Recurring deposit account provider, etc) to auto-debit the fixed amount from your savings account and credit it to the respective savings schemes.
Setting up of direct debit is an easy one-time process to automate recurring payments. If you invest ₹5,000 per month for 30 years, you can potentially receive more than ₹50 lakhs at the time of maturity at a growth rate of 15.89% per annum.
- Savings can also be indirect and long-term
You can also save indirectly by investing in tax-saving schemes. With a longer lock-in period, you can spend part of your income on these plans, which would have otherwise been deducted as income tax.
Tax savings plans also offer tax-free maturity benefits. Under Section 80C of the Income Tax Act, you can claim deductions from your taxable income by investing in specified investment channels. Investing in endowment and money-back plans help you save over long term along with availing life insurance benefits. The premium paid is exempt from tax under section 80C. The pay-out received is also exempt from tax under Section 10(10D) of Income Tax Act 1961.
Small Steps to Reap Rich Dividends
Savings is an art, requiring discipline and sustained efforts. The small steps you take today will reap rich dividends in the years to come. In the words of a wise investment sage, “Don't save what is left after spending; spend what is left after saving.”
Exide Life Insurance has a host of life insurance policies that help you inculcate the habit of disciplined savings to address various needs of your life and build your wealth. Learn more about products here.