There comes a moment in life when a large expense suddenly stands before you a car repair, an unexpected illness, or a change in job. At such times, the real test is not of your salary, but of how much money you have set aside. Even with a good salary, if nothing is left in hand, a single such expense can disrupt the financial calculations of an entire month, or even several months.
What exactly is Savings?
In the previous article, we saw that earnings are the roots of a tree, and expenses determine how much water to give that tree. But one thing is still left monsoons don't always arrive as expected. Sometimes an unexpected storm hits. At such times, if you have an umbrella, only then do you stay safe from getting drenched.
Savings is that very umbrella. It doesn't show how rich you are; it simply shows how safe you are in unexpected circumstances.
Savings is not just about storing money. Savings is the ability to breathe freely and feel secure. When you have savings, sudden medical expenses, job loss, or a car breakdown do not frighten you. They are just a hurdle, not a crisis that turns your life upside down.
Why does saving money feel difficult?
Many people feel that saving money is a form of sacrifice, as if we are giving something up. But in reality, not saving means choosing a much bigger sacrifice in the future. If you don't put aside a little money today, tomorrow when an opportunity arises you won't be able to take it, or if a crisis strikes, you will be forced to take on debt to face it.
When you already have some money set aside, an unexpected expense certainly still occurs, but it doesn't turn your life upside down. That expense gets covered, and starting from the next month, you can resume saving right away. The crisis remains the same, but its impact is drastically reduced.
Two main types of savings
When we talk about savings, we tend to put everything in one box, but in reality, savings have two distinct purposes, and it is very important to identify them separately.
The first type is savings for short-term goals. These are funds you set aside for a specific purpose, such as a vacation, new furniture for the home, wedding expenses, or purchasing a gadget. These goals have a defined timeframe typically a few months to two or three years.
For this type of savings, keep one simple rule in mind: the closer the goal, the safer and more easily accessible your place for the money should be. Suppose you need fifty thousand rupees for a foreign trip in six months. It is not wise to invest this money in the stock market, because if the market drops, your goal will get stuck. For such funds, options like bank savings accounts, recurring deposits, or liquid funds are much more appropriate.
The second type is the Emergency Fund. This is the most crucial part of savings, and for many people, it comes last or not at all. An emergency fund is money that is not meant for any specific goal, but stands ready for any sudden crisis such as job loss, illness, major vehicle or home repairs, or an unexpected family need.
It is generally said that your emergency fund should equal three to six months of your living expenses. Meaning, if your monthly expense is thirty thousand rupees, you should have an emergency fund of at least ninety thousand to one lakh eighty thousand rupees.
Hearing this number shocks many people "When am I ever going to save that much money?" But keep in mind, this goal doesn't have to be achieved in a single day or even a single year. Gradually, by setting aside a little money every month, this becomes possible over a few years.
Why should an emergency fund be "liquid"?
Here, one word is very important liquid. This means that whenever you need them, these money should be available in your hands immediately, without any major loss.
Suppose you put your emergency fund in a five-year fixed deposit or invested it in shares. Now suddenly you lose your job, and you need money. If you break the fixed deposit prematurely, you lose out on interest. And if the stock market is down at that very moment, you will be forced to withdraw your money at a loss. In other words, the very money that was supposed to make you feel secure ends up causing you even more loss.
That is why an emergency fund should always be kept in a place from where it can be withdrawn immediately, without any major loss such as a savings account, liquid mutual funds, or short-term fixed deposits that allow easy withdrawals. The purpose of this money is not to earn high returns the purpose of this money is to be right there, safe and ready whenever the need arises.
Difference Between Saving and Investing
Many people often consider saving and investing to be the same thing, but they are both different, and their purpose is also different.
Saving means security and preparation. The purpose of savings is not to grow money the purpose of savings is to keep money safe and easily accessible. Investing means growth. The purpose of investing is to grow your money over time, even though it involves a certain degree of risk.
If you confuse the two, you can suffer losses on both sides. If you invest your emergency fund in the stock market, and the market drops right when you need the money you get stuck. And if you keep your long-term investment money in a simple savings account, the value of that money gradually decreases over time due to inflation, because the interest on a savings account doesn't even match the rate of inflation.
Therefore, first strengthen the foundation of savings complete your emergency fund and short-term goals and only then move toward investing. If you reverse this order, the foundation remains weak, and no matter how beautiful the building on top is, it can wobble at any time.
How to Start Saving?
When starting to save, the biggest hurdle is that people think, "First let's cover all expenses, then whatever is left over, we will save." But in reality, that rarely happens, because expenses always expand to match the available money.
There is a simple solution to this "Pay Yourself First." This means as soon as your salary arrives, set aside the predetermined amount for savings first and then spend from the remaining money. It doesn't matter if this amount is small. What's important is setting it aside consistently.
Suppose your salary is fifty thousand rupees. Initially, keep aside just five thousand rupees for savings. This might not seem like much, but in a year, that becomes sixty thousand rupees. And every few months, as the habit builds and your income grows, keep increasing this amount.
The Big Impact of Small Savings
Many people think that saving requires a large amount of money, and that small amounts don't make any difference at all. But this is not true.
Suppose a person has a fixed monthly salary, and they set aside two thousand rupees from it every month even while thinking, "What difference is two thousand rupees going to make?" Over five years, just with simple interest in a savings account, this amount grows to more than one lakh twenty thousand rupees.
Now imagine the opposite if no savings were made during this period, and right within these five years an unexpected expense arose for the car or home, you would have been forced to take out a loan or rely on a credit card meaning conversely, you would have had to pay interest, where if you had saved, you would have earned interest.
This is the difference by not saving, you don't just miss out on opportunities, but at the time of a crisis, you end up paying a much higher price.
What if you start from zero?
Hearing the figure "ninety thousand to one lakh eighty thousand rupees," the first thought that comes to many people's minds is "This is impossible, I currently have nothing." This thought is completely natural, but here is something important to keep in mind an emergency fund does not have to be completed in a single month or even a single year. It is built gradually, step by step.
Keep the first milestone simple setting aside just one month's worth of expenses. This initial goal might feel small, but once you achieve it, your confidence grows. Once a month's expenses are set aside, keep your next goal at three months. And reaching six months from there will take a little more time, but by then, the habit of saving becomes so second nature that it doesn't feel like a burden anymore.
One thing helps in this journey the automation of savings. Most banks offer a facility where, as soon as your salary is credited to the bank, a predetermined portion of it is automatically transferred to another account. Once you set this up, there is no need to remember to save every month it happens automatically. Rather than relying on your willpower every month, setting up the system just once turns out to be much easier and far more effective.
Common Reasons Given to Avoid Saving
Behind not saving money, people give many reasons, and they sound completely valid. But if you look a bit deeper, most of these reasons are just like excuses.
My salary is so low that there is no room for savings" this reason is heard from many people. But the reality is that no matter how much the salary is, expenses always grow to match the available money. When the salary increases, expenses increase just as much, and "leftover" money for savings is never seen. That is why it is necessary to reverse the order: first save, then spend.
"I will start saving later, when my salary increases" this reason is the most dangerous because "later" never comes. Lifestyle keeps growing right along with the salary, and someone who cannot set aside five hundred rupees today will keep saying the same thing even when their salary doubles. The habit of saving does not depend on the amount; it depends on the decision to start.
"If an emergency arises, there is always a credit card or a loan" this is an easy way to think, but it comes with a hidden cost. Loans or credit cards require paying interest, meaning that when a crisis is already expensive, the burden of interest is piled on top of it. In contrast, if you use your own emergency fund, you are helping yourself with your own money you don't have to pay interest to anyone.
Practical Options for Maintaining Savings
The question of exactly where to keep an emergency fund troubles many people. Some simple and safe options are as follows:
Savings Account The simplest and most liquid option. Money can be withdrawn immediately, but the interest rate is relatively low.
Sweep-in Fixed Deposit Some banks provide this facility, in which the amount exceeding a certain limit in the savings account is automatically converted into a fixed deposit, and if needed, it immediately comes back to the savings account. This yields slightly higher interest than a savings account, and liquidity is also maintained.
Liquid Mutual Fund These funds invest in government securities and short-term debt instruments, and the money is returned to the account within generally one to two days. There is a possibility of getting a slightly higher return than a savings account, but the risk is extremely low.
Liquid Mutual Funds These funds invest in government securities and short-term debt instruments, and the money is returned to the account within generally one to two days. There is a possibility of getting a slightly higher return than a savings account, but the risk is extremely low.
A common mistake is that people confuse saving with investing and invest their emergency fund in the market because they want higher returns. This is dangerous, because the purpose of an emergency fund is safety, not returns.
The second mistake is saving without a goal. If you don't even know what you are saving for, the moment a large expense comes up, that money is immediately spent, and the habit of saving is never established. Therefore, give every savings a clear purpose whether it is an emergency fund, a trip, or a major purchase.
The third mistake is saving in the manner of "whatever is left over." If savings are what remains after your expenses, they almost always remain zero. Savings should be something that happens before your expenses.
Where it all comes together
Saving is that quiet strength in your financial life which is visible nowhere, but its true value is known only when the need arises. It does not make you rich it makes you secure. And once there is security, you can make decisions by thinking rather than out of fear whether that decision is about investment, changing your career, or accepting an opportunity.
Such a situation can happen in anyone's life at any time. The only difference is some have an umbrella ready at that moment, and some have to stand soaking in the rain. Saving means keeping that very umbrella ready, starting today, little by little.
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