There are two friends X and Y. X has a monthly income of Rs 60,000, while Y has a salary of Rs 40,000 per month. However, X's job is more stressful and demanding; while Y has a comfortable job with low stress levels and better work life balance.
X lives a lavish life. He spends most of his salary saves inconsistently. On the other hand, Y saves and invests quite regularly. From his monthly income, he saves Rs 15,000 a month in the following instruments:
-l Pension -- Rs 3,000
-l Child plans -- Rs 2,000
-l Mutual Funds -- Rs 4,000
-l Emergency fund -- Rs 1,000
-l Vacation fund -- Rs 1,000
-l PPF -- Rs 2,000
-l Medi claim -- Rs 2,000
Y would have sufficient funds to pay off his medical emergency.
One can never predict life. Hence it is a must to save for a rainy day. One should make a habit to save, be it a small amount. Here are some steps that you can follow to inculcate financial discipline:
Check on expenses. This is the foremost step. You should keep a check on monthly expenses. Unnecessary expenses should be avoided. One way to know how much one spends in a month is by making a monthly budget. This exercise will help you identify areas where money is being spent and also regulate the cash flows. You will also be able to see if there is any room to cut expenditure and save. The will free up cash that can be used to pay debt, if any, or help save for a rainy day. Cutting expenditure as opposed to earning more money, is the real key to gaining control of finances. Also you must ensure that some money is set aside to cover monthly expenses for at least three months. These funds should be set aside in such a way that they can readily used in case of any emergencies or contingencies.
Pay-off credit card or other debt. Paying off your debt early is one of the best investments you can make, specially by paying off debts that incur high rate of interest. This includes credit card payments that usually charge more than 32 per cent per annum.
Be financially disciplined. Financial discipline is extremely important. You have to maintain some discipline in the way you spend and controlling expenditure. This is the key to reduce liabilities and debt and save more. According to a famous trading and investing legend -- one must not spend time looking for the Holy Grail of investments or trading systems. It doesn't exist. The Holy Grail is within you. It's not the investment that's going to determine success or failure. It's the discipline of an investor.
A steady plan of saving and investing helps attain one's goal. With discipline and time one can achieve all financial goals.
Importance of saving: Here is a simple example. There are two friends, A and B. B saves Rs 500 per month. A saves nothing. Over the years, here's what happens.
The discipline of saving regularly has helped B be richer by Rs 19, 931. Also what you earn is not as important as what you save. If you spend everything you earn in futile pursuits and wasteful expenditure, then there is no point to the amount earned.
Invest: Start the wealth-building exercise by investing in low risk investments. Once the base is strong, then increase the risk exposure by investing in higher return investments. Also do not put all the eggs in one basket. Your risk tolerance level goes a long way in defining your investment approach. But do remember your investment objectives before you subscribe to an investment plan.
Follow systematic investment plan. Invest regularly. By doing an SIP, you can SIP (sleep in peace). This will help you reduce the cost and earn higher returns in the long term. As seen in the case of Y, by saving regularly he was able to meet medical emergency with ease. By following these simples steps, one can make your money last longer.
Source:http://news.in.msn.com/moneyspecial/personalfinancefeatures/article.aspx?cp-documentid=4034377
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