A high income or salary does not guarantee freedom from financial troubles. Many high earners find themselves eagerly waiting for their salary before the month end. No matter what your earning capacity is, having a well-thought-out financial plan and the discipline to save and invest regularly is what will put you on the path to financial security.
Building a savings habit may seem daunting, but it is easily achievable with the right approach. By following five straightforward steps, you can create a solid foundation for saving and achieving your financial goals.
Step 1: Understand your motivation for saving
Before embarking on your savings journey, it's crucial to identify why you want to save. Having a clear motivation will help you stay committed in the long run. Here are some reasons to consider:
- Lead a comfortable life without financial struggles
- Be prepared for emergencies, such as job loss or unexpected medical expenses
- Pursue your dreams, whether it's travelling the world, starting a business, or retiring comfortably
- Provide for your loved ones and secure their future
- Achieve peace of mind and reduce financial stress
Step 2: Open a Savings Account
- A Savings Account is a fundamental tool for building savings
- It keeps your money safe and also helps it grow through interest
- Opening a Savings Account online is easy and convenient as it can be done digitally, through a paperless process, using a video Know Your Customer (KYC) verification
- For example, Axis Bank offers an array of Digital Savings Account that can be opened digitally These accounts come with attractive cashback offers, deals, and a virtual + physical Debit Card, making it a valuable choice for savers
Step 3: Budget and track your expenses
- Understand your income and expenses
- Create a monthly budget that covers your fixed expenses (rent, utilities, EMIs), variable expenses (healthcare, clothing), and discretionary spending (entertainment)
- Allocate a portion of your income to savings within your budget
- Track your expenses using apps or spreadsheets to identify areas where you can cut unnecessary spending. As you trim expenses, allocate more funds to your savings.
Step 4: Build an Emergency Fund
- An emergency fund is a vital component of any savings plan. It should cover 6 to 12 months of your essential expenses, including rent, utilities, groceries, and loan payments.
- This fund provides financial security in case of unexpected events, such as job loss or medical emergencies.
- Keep your emergency fund in a Digital Savings Account or in liquid Mutual Funds, ensuring that it remains easily accessible when needed.
Step 5: Start Investing
- Draw up a list of all your goals, based on the time frame for each goal. Then match your short, medium and long-term goals with the right financial instrument to optimize returns. Besides, spreading your investments across asset classes will also help reduce the risk of losses.
- Choose short-term Fixed Deposits and Debt Mutual Funds for goals of up to 1-2 years. These fixed-income instruments offer stable returns in the short term.
- For medium-term goals, which are 2 to 5 years away, select longer-term FDs and Debt Mutual Funds, including corporate bond funds, based on your risk appetite.
- For long-term goals that have a time frame of 5 years and above, choose a mix of hybrid and equity Mutual Funds. These are riskier but also have the potential to offer inflation-beating returns over the long term.
- You can also invest in the Public Provident Fund and National Pension Fund for goals such as retirement, which may take over 10-15 years, given the long lock-in period of these investments.
- Automate your investments by setting aside 15% to 20% of your income every month. Consider starting a systematic investment plan (SIP) to invest in Mutual Funds automatically or start a Recurring Deposit to set aside a fixed amount every month from your salary.
[Also Read: How to maximise returns through your Savings Account]
Conclusion
Building a savings habit is achievable for everyone, and Axis Bank's Internet and Mobile Banking platforms, along with value-added products like Digital Savings Accounts, make the process even more accessible. Follow these five steps to start your savings journey, secure your financial future, and achieve your dreams. With determination and smart financial planning, you can attain the financial security and freedom you desire. The key to investing is to do it systematically and regularly.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. *T&C apply
