The best time of the month is perhaps the one where salary is credited to the account. After having worked for one full month, all of us keenly look forward to the payday. It is a great misfortune that this happiness does not last for long. Within the next 10 days or so, most of us are desperately waiting for the next paycheque. It is then no surprise that amid such scenarios, investing towards your financial goals takes a backseat.
For any typical salary earner, there is a complete list of expenses lined up at the very start of the month. These expenses consume a large part of one’s salary. These include bills, rent, installments, school fees, groceries, etc. After meeting these basic needs, the remaining amount is left for discretionary expenses, such as clothing, accessories, leisure, etc. When all these expenses are met, savings are almost over, and hence there is not much left for investment purposes. This is exactly why despite a lot of the salaried class understanding the need for saving and investing, they are unable to do so.
But there still is hope. With some proper planning and thought, one can start to save without having to compromise greatly on his or her lifestyle. The first part of this saving strategy is to automate your investments and savings before spending. Instead of saving what you are left with after meeting other expenses, instead, decide a certain percentage that you want to save every month. Next, set up an automatic SIP from your account in your chosen fund, depending on your goal. On the chosen date, these SIPs will be deducted from your account automatically. Ideally, this chosen date should be within the first week of the month. This way, you will be able to invest before you spend.
Initially, this might create a lot of pressure on you. This is because your usual expenses would yet have to be met, but now you would have lesser money in hand. And turns out that this short term anxiety is good. This will force you to reassess your expenses, and also keep a tab on them. This way, you can also postpone your negotiable expenses and altogether do away with the frivolous ones. Over time, your expenses will gradually begin to fall in line with your reduced income. On the other hand, if you try to reduce your expenses, that perhaps might not work since you intuitively would not know which expenses are more important than the others. For us humans, all our expenses are non-negotiable, till we find a way to deal with the problem.
Even if you start with a low percentage of savings, let us say 10 percent of your total income; over time you can think of raising it. This should not be difficult if you get annual appraisals. Increasing your investments every year will do magic to your returns.
If you do a SIP of INR 10,000 every month in an equity fund that gives 12 percent return, in 30 years you would have gained 3.08 crores. However, if you can manage to increase your SIP amount by 10 percent every year, you will have gained 7.99 crores! For those who may not have the required amount to invest in their goals, this is a really useful option. By gradually increasing your SIPs every year, you can easily bridge this gap.
Salaried people can also take advantage of SIPs in ELSS, which is also called tax saving funds. Since these belong to Section 80C, investments that are made up to INR 1.5 lakhs are exempted from tax. Moreover, since ELSS are multi-cap in nature, these also double up like mutual funds. By carefully working around it to develop it as one of your main long term goals such as retirement, you can not just save tax, but also build wealth for yourself.