Savings are Important! Right now, you may have a well paying job with great future prospects or you may have just started out and barely saving ₹100 at the end of each month. In both cases, you may say ‘no’ to savings, but I repeat, Savings are Important!
Here are some of the reasons for saving:
1. Peace of Mind:
The thought of losing a job, education fees, an unplanned expense, switching from a frustrating job, paying rent, that long postponed holiday – all of these cause loss of sleep and frustration when one has low savings. Some money set aside as savings by having a clear budget gives one peace of mind to take care of self and family. It also enables one to step out of an uncomfortable situation and sleep a lot better!
2. Save for Retirement:
The sooner you start saving, the more you would have, heading into retirement. With the advances in research and medication, humans are living longer than ever before. This means that once you retire from your job, you need enough saved over to continue your lifestyle into retirement as well. Planning your finances early makes a huge difference to the lump sum you create on your retirement (read our blog here about starting early).
3. Save for A Large Purchase (Home, Car or A Holiday):
Although nearly everything is available on a 0% interest down-payment nowadays, especially via online markets, that doesn’t mean that you should opt for that option! Paying a sizeable down-payment on that dream house, family car or even for education fees allows you to cut down on costly loan fees and interest. This in turn allows you to have peace of mind since a large EMI would burn a hole into your monthly budget.
Let me illustrate this with an example:
There are two friends, Ramesh and Rakesh, both buying a house for ₹25 Lacs. Ramesh is smart and makes a down-payment of ₹10 Lacs towards his house; while Rakesh puts up only ₹5 Lacs as his down-payment. In the table below, I have presented the difference in what they would pay for their house during the loan tenure (assuming a 10 year tenure; interest of 8.35%):
Loan Amount (₹)
Total Payable (₹)
This is assuming that interest rates remain as low as 8.35% throughout the life cyle of the loan; this is next to impossible as I have myself paid an interest of up to 10.4% on my home loan only a few years ago.
4. Investing in Self & Family:
The following quote says it all:
In the competitive world we live in, continuously educating ourselves is the only way to excel and stand out at the workplace or in the marketplace. This is not limited to only education courses, degrees/diplomas, but those conferences you could attend to learn the latest trends, network with people online or offline that can help you get to the next level.
5. Making Money Work for You:
There is an old saying that “Making the 1st Million is the hardest”. Do you know why? Since the moment you have a sizable lump sum, the power of compounding comes into play. I wrote about this some time ago, you can read the short note here.
The point to consider is that, the moment you put even ₹ 10,000 into a finance scheme and keep renewing it for just 10 years, the amount becomes over ₹ 22,000 even at a conservative interest rate of ~8%. This simple principle, along with starting early can make a huge difference to the corpus you can create over a long period of time. Sample this quote from the great Warren Buffet, ‘If you don’t find a way to make money work for you, you would be working for it until you die.’