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What is Savings and the Importance of Saving Money

By making saving a priority, you can take control of your finances and build a brighter future for yourself and your loved ones. If you are interested in exploring the different plans that can help you save money, you have landed on the right page. Read ahead and find answers to all your money saving questions.

  • 7,603 Views | Updated on: May 24, 2024

The importance of saving money cannot be overstated, as it is a critical tool for achieving financial security and stability. Saving money may sound very easy, but do not be fooled by how simple it seems. Saving money can be tough if you do not have the right money-saving plan alongside the support of the best tips.

Many studies on wealth expenditure suggest that most people spend extravagantly with a higher income. If you closely observe this in your life, you will realize that your living standard improves as your income increases. Unfortunately, when you fail to comprehend that your ‘want’ is not your ‘need,’ you tend to prioritize luxuries, spending more than you earn. This leads to a financial situation where you neither save more nor grow your reserves.

What is the solution to get off this never-ending cobweb of financial dependency? The answer is saving money.
This article discusses aspects related to saving money. Here, we will talk about the best way to save money, the best money-saving plans, the importance of saving money, and share some good savings tips to use in daily life.

Why Should You Save Money?

You must be thinking about why saving money is necessary. And what is the importance of savings?

  • Let us consider an example and understand this. Picture yourself as the new employee who has just started earning. As a young adult fresh out of college, you must have numerous desires. The list goes on, from owning your first bike to buying costly cosmetics to getting expensive gifts for your near and dear ones from your first salary.
  • Having such a lifestyle where you focus on investing in liabilities without any savings can act as a disaster in the long run. You would also limit yourself from creating wealth to survive situations where savings might fall short.
  • This further serves as an invitation to big financial troubles in the future. Therefore, to ensure you do not land in such a situation, you must understand the importance of saving money.
  • In a world full of lures, saving money from your income requires a lot of sincerity and discipline. But, at the same time, even if you have sincerity and discipline, you will not be able to grow your savings without a decent and wise money-saving plan.

How Much Money Should You Save From Your Salary?

Honestly, this is the most critical question you should ask before moving ahead with a fool-proof money-saving plan. Your salary or income binds you to a financial limit to a certain extent. So, if you are a salaried employee or someone dependent on a monthly income, your focus should be on how much you can save money and not on how much you earn.

If experts are to be believed, ideally, a person should keep around 50% of their income for routine expenditures, 30% for lifestyle, and the remaining 20% for savings.

However, given the reality of life and goals, financial advisors suggest cutting short on luxuries and saving 35-40% of your income if possible. This will help you quickly achieve your short-term and even long-term goals.

Top Money-Saving Tips

Undeniably, you want to get the key to the best way to save money. However, if you look right into your daily life and follow some easy money-saving tips, you can save a large sum of your income.

  • Make a monthly budget plan
  • Cut expenses from your monthly budget
  • Saying ‘NO’ to credits and debt
  • Finding the best money-saving plans and investing in them wisely
  • Considering salary hikes and bonuses as savings cutting fines/penalties by timely payment of EMIs and bills.

Best Money-Saving Plans

With the cost of living constantly on the rise, it is important to find ways to save money and ensure our financial security in the long run. Luckily, there are plenty of money-saving plans available to help us achieve our financial goals. From budgeting and investing to cutting back on expenses, there are countless strategies we can use to save money and build our wealth.
Let us now explore some of the best money-saving plans that you can use to take control of your finances and secure your financial future. Whether you are just starting to save or looking to improve your current financial situation, these tips and strategies will help you make the most of your money and achieve your financial goals.

Money savings tips to reduce financial stress

Mutual Funds (SIPs)

Systematic Investment Plans, or SIPs, are one of the best ways to start your savings and investment journeys. In this, you can start investing with as low as ₹500 every month and slowly increase your contribution in the coming years. Constantly investing for 10-15 years can help you achieve good returns when you need your money.

ULIPs

Unit-Linked Investment Plans, or ULIPs, is another good financial product to help you create wealth in the long run. The idea is to pay a yearly premium divided into investment and insurance. Then, if you face an unfortunate incident, your family can also get the returns and death benefit—a two-in-one solution.

Guaranteed Savings Plan

Similar to ULIP, Guaranteed Savings Plan also allows you to invest a yearly premium for a specific period and give you guaranteed returns over the years. However, the difference here is:

ULIP allows you to invest in different options like equity, debt, and so on, which provides you with an opportunity to earn an optimal return.

Do not get confused; both plans are best per the requirement. A guaranteed savings plan is your saviour if you are looking for guaranteed returns to achieve a life goal. However, if you are looking for a much-balanced return with a high-risk appetite, ULIP is your friend.

PPF/EPF

PPF/EPFs are other excellent options for investing and savings. These plans also allow significant tax savings. Another benefit is that the Government runs these schemes; hence, your money is safe.

Reasons Why Saving Money is Important

Savings are essential for everyone, regardless of income, consumption, or life stage. Here are some of the reasons why you should start saving.

Gives You A Better Future

Savings can help you achieve a variety of objectives. You can use your money to buy a house, save for retirement, or buy a car. You may safeguard your future, enjoy the most that life has to offer, and live a very satisfying life. It pays for your children’s education, and with significant savings, you can fuel your children’s dreams and pay for the greatest schools and colleges around the world.

Offers Peace Of Mind

Knowing that you have a certain amount saved up for emergencies provides you peace of mind. You can live a stress-free existence knowing that you will not have to suffer if things go unexpectedly wrong.

It provides security for your family in the event of an unpleasant incident: By saving in a disciplined manner, you may ensure that your family is well provided for. In difficult times, your money might act as a cushion for your loved ones, assisting them in overcoming financial difficulties.

Plan Your Short-Term Goals

Savings are not only for the long term. You can also benefit from short-term savings. Many people save for a few months before travelling.

Tips To Enable Savings

Saving money is one of the most essential financial habits that everyone should develop. Unfortunately, not everyone finds it easy to save money. With so many expenses to deal with, saving money can sometimes feel like an impossible task. But with the right tips and tricks, anyone can start saving money and building a secure financial future. Let us now look at some amazing tips to enable savings:

Set a Budget

Budgeting is the first step in saving money. Determine how much money you need to spend each month on necessities like rent, utilities, and groceries. Make sure you understand your income and expenses completely. Once you know how much you need to spend, you can set a savings goal.

Track Your Expenses

It is essential to keep track of your expenses to identify areas where you can cut back. To keep tabs on your spending, utilize a spreadsheet or a budgeting tool. This way, you can see where your money is going and make changes to your spending habits.

Cut Back on Unnecessary Expenses

After you have tracked your expenses, identify areas where you can cut back. For example, you can save money by bringing your lunch to work instead of eating out. You can also cancel subscriptions that you do not use or need.

Start an Emergency Fund

Emergencies can happen at any time, and having an emergency fund can help you avoid financial stress. Create an emergency fund with enough money to cover costs for three to six months. This way, you will be prepared for unexpected expenses like medical bills or car repairs.

Automate Your Savings

Automating your savings is among the simplest strategies to reduce your spending. You can program transfers from your checking account to your savings account to happen automatically. This way, you will not have to remember to save money each month, and you will be less likely to spend the money you intended to save.

Find Ways to Earn Extra Money

Look for ways to earn extra money to boost your savings. You can consider taking up a part-time job or selling items you no longer need. You can also look for freelance opportunities or start a side hustle.

Avoid Debt

Debt can be a significant obstacle to saving money. Avoid taking on unnecessary debt, and make sure you pay off any outstanding debts as soon as possible. This way, you can free up money to save.

Wrapping Up

The importance of saving money cannot be overstated. Whether it is for a rainy day fund, retirement, or to achieve your financial goals, saving money is a critical part of achieving financial stability and success. By making saving a habit and finding ways to cut expenses, you can build a strong financial foundation that can help you weather any financial storms that come your way.

Remember, saving money is not just about accumulating wealth; it is also about giving yourself peace of mind and the ability to live the life you want without financial stress holding you back. So start saving today, and watch as your financial future becomes brighter and more secure.

Key takeaways

  • A person should keep around 50% of their income for routine expenditures, 30% for lifestyle, and the remaining 20% for savings.
  • Financial advisors suggest cutting short on luxuries and saving 35-40% of your income if possible.
  • From budgeting and investing to cutting back on expenses, there are countless strategies we can use to save money and build our wealth.
  • Budgeting is the first step in saving money. Determine how much money you need to spend each month on necessities like rent, utilities, and groceries.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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