Saving is the process of storing a portion of your current income so as to meet your varied needs. It is essential to save regularly so that you can meet your daily expenses, emergencies, future purchases, and investments. Once you have established a savings account to meet your daily expenses, you can begin to invest your money monthly so as to get a future income.
Let’s now calculate the amount that you need to save regularly so as to secure your future:
Amount I need to save regularly?
Usually, the hardest part about saving money is getting started. Finding ways to make savings and using them to achieve your financial objectives can be difficult at times. However, it is essential to contribute at least 10 to 15 % of your net earnings towards your savings reserve.
Going by the following simple steps can help you develop a realistic savings plan:
Set your savings goals
The first step you need to take to start saving is setting your savings target. Until you have a set goal, your plan will be directionless. Start by deciding your savings target so that you are financially secure after retirement. In the interim you have to consider the key life events such as:
- Buying a new car
- Buying a new house
- Your marriage
- Becoming a parent
- A vacation with family
- Your child’s higher education
- Your child’s marriage
- Medical emergencies
- Other contingencies
Record your expenses
The second step is to know what are your and omitting the unnecessary ones. Start with keeping a record of all your expenditures in a month. It should include smallest of your expenses from a coffee to a newspaper. Once you have all the data, categorize your expenses under various heads such as groceries, electricity, transportation etc.
Make a budget
Once you get a total for each head, look for the unnecessary spending in each of them and reduce them to the best possible extent. Build a budget so as to limit your spending, and ensure that you keep some ratio of the money in an emergency reserve. Do include the expenditures that do not happen every month but after regular intervals such as routine health checkups and car servicing.
Choose your savings strategy
You can consider the following savings techniques if you are saving for short-term goals:
- A standard bank savings account to enable easy access to cash
- Debt mutual funds
- Bank fixed deposits
- Recurring deposits
When saving for long-term goals, you can consider
- Equity mutual funds
- Unit-linked insurance plans
Use the Savings Calculator
This calculator helps you assess the amount you need to save monthly or annually in order to achieve your financial goals. The calculation is based on your existing savings, the time in which you want to achieve your goals, and the gross annual interest you receive on your savings. To get the results from this calculator, you need to key in the following information:
- Amount you wish to save: In this field you are required to mention your savings target i.e. the amount you would require to save for your secure future. Keep in mind that this is the basis and the most important part of your savings plan.
- Existing Savings: In this field you need to enter the total amount you have managed to save till date. Also, consider the savings that you have made in the form of investments and not just the liquid savings.
- Monthly/Annually: In this field you need to select whether you want your result regarding the required savings on an annual or a monthly basis.
- In what time: In this field you need to key in the desired time in which you want to achieve your savings goals.
- Gross annual interest rate (%): This field requires you to enter the rate at which you receive the interest on your saving per annum. It can vary between 1 to 20 %.