Savings : How much of your salary should you save ?
Salary and savings have a fairy tale better than any. Their mutual dependence is understood by all. Yet, many fall short of actually getting into the habit of saving regularly. Bigger the salary bigger the savings, smaller the salary–well, it should still be a big saving! It is that free money left over after a hard fought war between expenses, liabilities and amusement. But one question always remains on your mind—how much should I save?
Unfortunately, there is never a perfect answer. Each individual has her/his own needs and priorities. The only smart thing to do is to treat savings a need and a top priority. The amount that you can save of course depends on your age and income. Let us look at a few factors that could help you when deciding how much money to put aside as your savings:
The first step you need to take even before receiving your salary is to budget or segment your income. Think of it as the basis of your cash flow. You resemble the head of a company in your house who has to run it smoothly with the available amount of income. It includes figuring out a way to prioritise all responsibilities such as paying off debts, accounting for daily expenses, being realistic about emergency expenses and, then saving while still enjoying your life.
When should you actually start saving? The rule of thumb is you can start saving as soon as you get your first job! That means you are good to save your whole earning life. When you get your first job, it is a lot of ‘firsts’ at the same moment. First full time job, first apartment, first day to handle your own finances. It is important to reward yourself for successfully entering adulthood with dinners and trips. However, it is necessary to set up a financial foundation for yourself right from the start. Derive a disposable income after overcoming all your expenses.
As youngsters have lower incomes, they can afford to put away small amounts in savings than people in their 50s with smaller retirement assets. Even if you are in your 20s, it is recommendable to flip 25% of your income into savings. That means you should not spend more than 75% of your income including your rent, utilities and phone bill. To successfully save, it is not always the amount that matters, but the habit of saving every month. Even if that number starts small it can gradually grow as you get into the habit. If you aren’t able to hit 25% or even 15%, start wherever you can.
Saving does not just mean putting funds into your retirement account. It is necessary to save beyond it for the purpose of your goals, for example a new home. If you do not, then it would be hard to pay for an emergency fund or a down-payment on a home loan. For a person in their 20s, it is alright to prioritise your goals over your retirement with decades of earnings left in future. But for a person in their 40s, it becomes necessary to start contemplating options for the time when they stop earning. It is important that you start saving simultaneously for both your retirement and future goals.
Equity is the amount of ownership over your assets. It is natural to create goals around buying a house or car or even business prospects. It is necessary to acquire an amount of ownership over every asset that you buy, which becomes your equity. Distribute your income into certain amounts that you can use to buy products. Even if you buy a home on a loan, then it is better spend at least 30-50% of its price in your money. That is how you create room for future savings alongside completing your goals.
At last, it is important to keep working on the amount you have saved. For most people, their expenses dictate their savings’ habit. You must make your savings decide your lifestyle. Like saving? Then, save till it cringes you. This does not mean that you never have fun or splurge. But save enough so that you are not splurging everyday.
What to do with your savings?
Now that you have completed the hard task of saving money, it is time to find out a way to make it grow. The first step is to remove the thought of keeping your savings idle. “How nice it would be if money was a tree and earnings were the fruits!” Well, it is possible now with ‘investments’. You just need a portion of these savings to be the seed, about 5 to 10% of your savings every month should be sufficient.
Investments make your money grow overtime. With a handful of opportunities and destinations to put your money into, it is necessary to make the right choices before putting it in. The best way to start is with an investment portfolio. Set your goals, analyse the trends and sort out requirements you might have in the future, and then look for an option that best suits it.
Basically, investments are made under two categories— reliability and liquidity. When it comes to your hard-earned-money, security becomes a major aspect. Investments may make your money grow, but there is always a risk of losing it depending on which financial instruments you decide to purchase. Therefore, it is important to look for less volatile options pose lesser risks.
Liquidity dictates how fast you can convert your investments into cash. It also refers to the ease of accessing it. That means that the money that you invest should be available to you at a short notice. If you put your savings in a financial instrument such as a fixed deposit that you can withdraw only after a particular time. The interest rates and the duration determine the speed at which your savings can grow.. If you put your money in some place that taxes you for withdrawals or only allows withdrawals after many years, then your financial stance is highly illiquid.
Apart from putting your savings in the bank to earn a reliable but small interest or even investing in the share markets, there is something else that you could be doing with your savings. One such reliable, liquid, non-volatile as well as secure destination is P2P lending. P2P Lending platforms allow peole to seek loans directly from an investor. Who’s the investor in this case? You. You’re lending the money at attractive rates of interest and making solid investments while you’re at it. The investors and borrowers can negotiate the period and interest rates on a peer-to-peer basis which makes it faster and efficient than banking. Plus, the borrower has to verify all the documents that are uploaded to the platform before they can apply for loans.
The investors have an option to sort the borrowers on the basis of their credit scores which is judged upon the availability of documents, previous repayments and income. Many platforms – such as i2i Funding – also assist an investor in recovering the money back if somehow the borrower defaults on repayment. This makes P2P lending a reliable option. Moreover, an investor earns money monthly from the interest rates charged. That erases the question of fluidity of your investment.
It makes perfect sense to invest in P2P lending when it comes to secure and fast earnings. The returns are as high as 30%, and the process is transparent enough to be a first choice when it comes to investments.
Want to get started? Log on to www.i2ifunding.com now!