Saving for the future is critical for everyone to achieve their financial goals. Some people want to save to accumulate wealth, buy a house, buy a car or see their child settled abroad.
One may not want to save just to beat inflation; some people save and invest to achieve their short-term and long-term goals.
Tips to save money in the future
1. Create an emergency fund
The first step towards saving is to start with creating an emergency fund so that you do not want to disturb your financial routine if any emergency arises.
There are many formulas to create an emergency fund. One way is that you can create an emergency fund for six months of your expenses. So, in case of situations like job loss, your emergency fund can take care of your expenses till you find another job.
You can park your emergency fund in liquid funds so that the liquidity is maintained.
2. Make a monthly budget
Making a monthly budget will help you to save money in a better way, as you will be able to identify and analyze your income and expenses in a better way.
In this step, identify all your income first and then expenses, where you are spending the most of your money. Making a monthly budget will assist you in segregating income and expenses into different categories.
To create a proper budget, you can follow the 50-30-20 rule. It says that 50% of your income should go towards your needs, 30% for wants, and 20% for saving and investing. By following this rule, you can manage your monthly budget.
3. Spend wisely
Spending wisely is as critical as making a budget. After making a budget, you can evaluate where you can cut down your unnecessary expenses. And where you do not need to spend your hard-earned money.
For example, you may have bought a monthly subscription to some adventure park, but you may not be utilizing it. So, you can cancel your subscription and save a lot of bucks.
Also, don’t take quick decisions in buying things. Evaluate its cost and usage, then make a thoughtful decision. If you spend wisely, then you can make a huge difference in saving for the future.
4. Set goals
The next step is to set your goals both short-term and long-term. Categorize your short-term and long-term goals based on their priority. And start saving for them.
For example, sending your child for higher education after ten years is an example of a long-term goal, but paying for the school fees in the next 11 months is an example of a short-term goal. Identifying and prioritizing your goals is very crucial.
Some parents could have a short-term goal to pay for a child’s higher education. So, it is essential to prioritize your goals based on time availability to achieve them.
Additional read: How to save money to buy a house?
5. Create a savings plan
After deciding on your goals, create a savings plan for each goal. Try to save a fixed amount for each specific goal. Evaluate the cost of your goals; save and invest some money to achieve your target with ease.
For example, if you want to send your child for higher education in the future, and the cost of IIM Ahmedabad in 2030 may cost Rs 60 lakhs, to save Rs 60 lakhs in the next eight years, you need to save and invest Rs 34000 every month in such asset class which can generate 14% annualized returns over the period.
So, it is important to create a savings plan for each of your targets, such that you know how much you need to save and for how long. Before investing your money in any of the asset classes, please do thorough research on it.
6. Review the plan
After creating the savings plan, try to do a yearly review of the same and see whether the savings and investment are on track or not. If they are not aligned with your goals review your savings plan and make the changes accordingly.
Conclusion
There is no one best way to save for future goals, in fact, there are multiple routes you can take to create a financial plan for yourself and your family’s diverse needs.
Saving for the future will make you financially independent and free. It will also be going to help on rainy days without impacting your finances.
Following these steps could be difficult at the beginning, but after some time, these steps will change the way you spend and save.
