"Tell me what to do with money?"
I remember asking this question to my dad after my 5th birthday party was over. I was angry because people kept handing envelopes/money to me instead of the beautiful and attractive gifts that I wanted.
In order to capture my interest, my dad taught me how I could keep accumulating the money in a piggy bank and use it to buy the dream bicycle that I longed for. Subsequently, whatever I could save from my pocket money each month, I happily put into that piggy bank.
I still remember the joy it gave me to hold that piggy bank and realize that it was becoming heavier and I was becoming richer.
The lessons learnt then, albeit originating from childlike intentions, have lasted a lifetime. In fact, the following few habits which I imbibed then have helped me create a pool of money that I believe everyone should have once they start earning.
#1. Target a goal and save for it
No matter how small the saving is, start saving and with a specific goal. Once you have something to look forward to, the motivation for saving increases manyfold. It also curbs all the impulse buying decisions that you take in the present, keeping the idea of saving at bay.
The ideal scenario would be to save at least 20% of your salary every month.
#2. Increase your savings by the % increment in your salary
After having inculcated the habit of saving monthly, I started cutting down on my extra expenses to be able to add a bit more. Moreover, I saw the increase in my salary not as the freedom to spend more, but as the ability to save more.
It helped me save an amount even bigger than what I had intended to.
#3. Boost your savings by channelizing your investments
For every fifty rupees I saved, my dad used to add an additional 10 rupees to my piggy bank as a reward. That’s what made me realize the importance of, and the resulting happiness from, earning something over and above what I saved.
Initially even the thought of parting with my hard earned savings was unnerving. Hence I started with investing lump sum amounts in Debt/Liquid mutual funds (returns of 8%-9% p.a.), that eventually took on the role of my savings bank account (returns of 4%-5% p.a.).
Starting a monthly investment in Equity Mutual funds (returns of 14%-16% p.a.) was the next step. It is highly recommended that you start investing in order to stop depletion of your savings due to inflation, which hovers around 8% on an average.
You can select from among different investment avenues (Mutual fund/Recurring deposits/Tax Saving Schemes) keeping in mind the risk profile of your goals and the investment horizon.
Following these fundamental habits in a calculated manner helped me create an emergency fund that gave me the comfort, as well as confidence, of being able to deal with any adverse condition.
Whenever I have had to withdraw from this fund, I ensured that I put back an equal or greater amount.
Not to forget, the clay piggy bank that all this began with is still there at my parent’s home. It unknowingly helped me chart the path towards financial freedom in my formative years.
Even though it was my first emergency fund, I never broke it.
This post is part of our continuing series where Scripbox team members share their personal stories about money and investment.