Savings come before investments - Are you saving enough?




Am I saving enough This is question that everyone needs to find an answer to. It is important to earn a handsome income but it is equally important to save enough. Savings are the foundation stone of investments. Investments can happen only if savings are good, however it is equally important to note that savings alone does not guarantee investments. But there is no denying the fact that saving money is a pre-requisite for wealth creation. Many people earn handsome salary or income from business or profession but don't save enough. The end result is that savings look paltry and wealth creation does not start. Money just flies from their bank accounts.

One of the enemies of savings is the demonstration effect which has influenced savings in a major way among Indian households. India is gradually moving to a credit economy where people borrow and purchase goods and services. This means we are buying products which we are not supposed to. Many people justify such expenses in the name of necessity. That habit of savings which used to be the part of DNA of Indian household has undergone significant changes. Today an average Indian middle class household is significantly leveraged as the loan outstanding per individual has gone up significantly. While taking loan for a house, where one intends to stay, makes sense, borrowing money for a holiday is something which needs to be avoided.

Second reason for lack of sufficient savings is absence of accounting of money. Just as companies have their books of accounts, we also need to have our own books of account. But this very rarely happens, inpsite of most of the people having access to technology. We don't well and as a result of this it is not possible to ascertain what our expenses are. Many a times only when money flows out of bank account completely, we get to know that there is no money left and we have no option but to wait for salary or some other source of income.

Last but not the least there is a feeling among people that the source of income will never dry for a person. Retirement is something which will happen to others only. With traditional pension paying jobs are not available anymore, it is important to ensure that there are enough savings in place to take care of old age requirements.

So what it is that we are supposed to do.  Save and save enough. But how much is enough. This can be answered by reading what Warren Buffet had to say on savings. “Do not save what is left after spending, but spend what is left after saving” is the recommendation of Warren Buffet. Sounds challenging and difficult to implement. Simple, take a pledge that no matter what, you will save 25% of our income under any circumstances. This does not require any great skill just simple determination.


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