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Why You Should Make Saving Money a Priority
The global coronavirus pandemic of 2020 has been an eye-opener for many. It has taught us a lot about life’s unpredictability, as also the importance of saving money and making prudent investments. It has arguably made us smarter investors and prepared us for future emergencies, medical or otherwise.
Jan 2022
5 mins read
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Learning to save – the 50/30/20 approach

As a rule of thumb, an individual should allocate 50% of their income to ‘necessities’ or fundamental costs, 30% to ‘needs’ or optional spending, and 20% towards savings and investments like ‘liquid funds, equity funds or mutual funds’ [2]. Mutual fund investments are one of the most common ways to allocate funds in stocks, bonds, and other money market instruments for short-term as well as long-term gain. Many of us overspend without realising it, and the 50/30/20 guideline is a simple way to be mindful of how you spend, save and invest.

The advantages of saving and investing

There are many benefits to inculcating the habit of saving and investing. Setting aside money can help you become financially stable, stay away from debt and reduce financial stress. Here are some key reasons why you should make saving and investment a priority:

You could retire early
Reserve funds can help you retire early. By putting away a part of your income every month to invest in equity, you'll ultimately accumulate a healthy retirement fund. Would you rather spend your retirement doing the things you always wanted to – or struggling to work because you have debts you can’t clear without an income?

You’ll always be prepared for a rainy day
We all have to deal with big and small crises in our lives. From a family crisis that requires you to take a last-minute international flight, to a health scare that necessitates hospitalisation, having some money set aside helps reduce financial pressure.

You can buy the things you’ve always wanted
Once you have a growing retirement investment fund, using mutual funds to invest, you can start putting money aside for other material purchases, such as a car, an initial instalment for a house, or a vacation. Remember to keep track of your equity fund, liquid funds, and debt fund so you’ll know when you're ready to make that big purchase.

You can create wealth.
Setting money aside is critical to creating wealth. Investing in tax saver mutual funds over the long term can help you earn capital gains that can contribute to your wealth.

Here are some quick tips to get you started on your saving and investment journey:
  • Pick a reason to save and invest – begin by considering a backup income source or going through online tools to set up smart financial goals in life.
  • Some investments, like Equity Linked Savings Schemes (ELSS), offer tax benefits. Make sure to identify tax saver mutual funds and invest smartly so that you have a chance at long term wealth creation while saving on tax too.
  • A general mantra of investment is, the higher the risks, the higher the returns. Be sure of your risk appetite, and do some careful research on which mutual funds’ returns are worth the risk.
Keeping aside large sums of money to invest every month can be difficult, assuming your expenses and income are both fixed. However, you can start small and increase your investments gradually as your income increases over time. Taking the help of an experienced financial advisor will be helpful in working out your financial goals and achieving your objectives through a well-planned investment portfolio.

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