A famous proverb says – a penny saved is a penny earned. This proverb stresses on the importance of saving money so that you can create a corpus. You have different types of financial goals in your life and to be able to meet these goals, you need to save and invest. When it comes to saving, having a limited income might limit your ability to save. However, if you are smart, you can always make your savings grow gradually, with time, even if your income is limited.
Everybody wants to grow their savings and so here are some of the best and simplest ways to make your savings grow –
1. Start Early
One of the main reasons why your savings do not grow as much as you would like them to is procrastination. Most often than not you delay investing money in suitable avenues and start a saving corpus. This time lost is the time wherein you can actually make your money grow.
Let’s have a look at a very simple example.
Say you invest INR 5000 every month in a scheme which offers a guaranteed return of 8% per annum. Now, if you start investing in your 20s, say at 25, the corpus which you can accumulate by retirement when you reach 65 years of age, would be about INR 1.75 crores. If, however, you delay your investment by just 5 years and start at 30, the corpus accumulated would be about INR 1.15 crores. A delay of 5 years and you lose a corpus of INR 60 lakhs, considerable, isn’t it?
That is why it is imperative that you start saving early. When you do so, you can save small amounts and still create a considerable corpus through the power of compounding. So, start saving as soon as you get a job and start earning.
2. Save First Spend Later
When you get your income or monthly salary, always keep aside a portion of it and allocate it to investments. Many times you think of meeting your expenses first and then save when you have income left. This is a mistake because when you start meeting your expenses first, chances are that you would not be left with sufficient income to invest.
So, try and keep aside 10% to 20% of your income and invest it regularly. This would help you save in a disciplined manner which would ultimately make your savings grow.
3. Create an Emergency Fund
Life is uncertain and emergencies might come unannounced. In such cases, you need funds to tide over a difficult time. Making a provision for such a fund is a wise financial decision. You should create an emergency fund equal to at least 6 months’ worth of your income. This fund would come in handy on rainy days and would not disrupt or put a stop to your savings. Since your savings would not bear the brunt of emergencies, they would remain protected and grow with time.
4. Invest Wisely
Investments are essential to make your savings grow. Investments give returns which, in turn, help your savings to multiply. So, just saving money in your bank account or your safe deposit box would not make it grow.
Invest your saved money in suitable investment avenues. When choosing the avenue, make your decision based on your financial goals, their horizon and your risk appetite. There are different types of investment opportunities available in the market and you need to be smart when investing in them.
Create a well-diversified financial portfolio which has a healthy mix of equity and debt. While equity would yield attractive returns, debt would stabilize your portfolio in times of volatility. When you have a healthy mix of equity and debt, you would be able to generate returns on investments in all market sentiments. So, be wise and careful of the investment avenues that you choose.
5. Have a Long Term Perspective
Rome was not built in a day. The same holds true for your savings. You cannot expect exponential returns on your savings within a short period. Even when you invest in avenues which promise attractive returns, you need to be patient.
Give your savings time to grow. The power of compounding would help your savings to multiply but only when you give them time. This is why it is recommended to start saving early because when you start early, you can have a long term investment period which would allow your savings to grow.
6. Plan Taxes
The returns that you earn from different investment avenues and which help your savings to grow might have a tax implication. Income tax might be payable on such returns which reduces the net growth of your savings. So, when choosing investment avenues for your savings, tax planning is essential.
You should invest in avenues which give you tax benefits so that the tax-adjusted returns are high and taxation does not eat into the returns that you earn.
There are avenues which give tax-free returns or where the taxability of the returns is low. Choose such avenues for maximum growth. For instance, PPF is a tax-free scheme where the returns are completely tax-free in your hands. Similarly, equity stocks and equity mutual funds give tax-free returns of up to INR 1 lakh if redeemed after a year. So, invest in these avenues to save tax and allow your savings to grow.
Making money is everyone’s dream and yet many of you might not achieve it if you don’t manage your money wisely. Follow the above-mentioned tips to save, invest and also make your savings grow so that you can create sufficient funds to take care of your financial needs.