Today’s generation often underestimates the power of savings. We want to spend what we earn to buy what we desire. We often neglect planning for a secure financial future. But do you know that the rich and successful are also incredibly focused on savings. So it can always help to take a leaf from their books, and start saving the way they do.
Golden rule of creating wealth
Saving is not as simple as putting the leftover sum aside at the end of each month, once you have deducted all your expenses. Savings begin before you start spending. Once you save, it will become a second nature to you. The golden rule of the rich and the successful puts the savings figure at 10% of whatever you own. It is not too much, not too less, and just enough to bear risk once it is invested. Even your taxes are to be paid after you have kept aside the savings amount. This will help in changing your mindset about saving and helping you build a secure financial future.
Most important figure in the equation
Your income is what you get, your expenses are what you spend and your savings are what you store. Out of all three, your savings are the most important figure in the equation. There is absolutely no risk associated with savings. In case of a dire financial situation, you can always use your savings as a back up. If you saved 20% and you need 5% to pay off an important loan, all you have to do is take the money and pay the loan. You will still have 15% in your savings account.
But if you have spent all your money and an unexpected financial event occurs, you will not have anything to fall back on. You saved nothing and paid off all your bills, but now you don’t have a security blanket.
Building a safety net
Building your savings over time will mean that after a year or two, you will have a substantial amount built up. Whether you choose to invest it or not, you still have a safety net. In these trying economic times, if we fall into another recession or something other than that happens, you are mentally at a good place with the knowledge that you have savings to keep you on your feet till you figure something out.
Start small and you will be able to build big. Keep in mind that even if your end goal is to not become a millionaire, these strategies, especially the golden rule, still apply for you to have a financially independent and secure future for you and your family.
Expenses with increasing income
When your income increases, so will your expenses. Even now, each of us focuses on the expenses first and the savings later. This is the wrong approach to take when it comes to your personal finances. Keep 10% of whatever you make, whether it is Rs. 10,000 or Rs. 1 lakh. As long as you keep the 10% goal in mind, you will be able to cut down on all unnecessary expenses. These expenses will disappear once you start living on the 90% or even 80%, as you eventually increase the percentage of savings.
As we keep emphasizing, follow the golden rule. If you must change the number, round it up to 10.5% instead of rounding it down to 9.5%. Remember, even though it might seem hard in the first few months, it will become a habit eventually to save and then spend. Whether you are in debt or paying off a loan, save, and then pay whatever you can with the remaining money. These tips have been used by wealthy people all over the world and have been proven to be successful over the years. We hope the tips will be just as helpful to you.