Most of us are advised to “save for a rainy day” or to “save for the future”. But let us clarify the words and difference between the word ‘saving and savings’.
Saving is defined as an increase in net worth, it happens over time and may increase or decrease over time. For example young people generally can save a higher portion of their incomes due to fewer responsibilities, even if they earn less.
Savings on the other hand is what is present at a point of time. It could be split across various assets. For example one could have a savings of ₹100,000 today and have savings of ₹150,000 six month from now.
Most people save as they understand that they have a fixed period of time when they can exchange work for money, the average retirement age in India is 60, giving a work span of around 39 years for graduates and 37 years for those with higher degrees, and not counting for time spent between or without jobs.
As expenses have gone up, and life spans increased, one needs to save adequately for expenses when earned income (income from active involvement and considerable time dedication) which generally the largest chunk of income for most people, becomes zero. One may also need a fixed amount as saving for a specific reason such as a down payment for a house or to fund a college degree abroad.
Most people plan to save on a monthly basis after they get a paycheck. They want to save a fixed percentage. Another method could be to plan saving daily, a little by little, in addition to saving a fixed portion of their monthly paycheck.
Now imagine you save a small portion daily. Say you start with saving ₹1 today, and continue to save as stated below:
Day
|
Amount
|
Cumulative Saving
|
1
|
₹1.00
|
₹1.00
|
2
|
₹2.00
|
₹3.00
|
3
|
₹4.00
|
₹7.00
|
4
|
₹8.00
|
₹15.00
|
and so forth. For a full calculation, refer this sheet.
Now most would look at the figures after day 10 or day 11 and say they could not possibly save those amounts, heck if this system was possible to use till the 31st day, I would have been a billionaire already !!
But the trick is to reset as soon as you think that you could not save todays double tomorrow. Say you save till Day 11 i.e cumulative savings of ₹2,047 and then cannot save ₹2,048 tomorrow, then start again at ₹1 from Day 12.
If one could complete 3 cycles of saving till day 11,then they would have ₹6,141 at the end of the month or ₹73,692 at the end of the year or approximately ₹2.2 million at the end of 30 years and that is without calculating for interest (more on this later) and reinvestment (more later).
Now if one is smart and invests this into anything from stocks, recurring deposits etc, they could build up significant savings for the future. The trick is to start,stay consistent and disciplined.
