Smart Saving

IDFC First Bank

By: John Oh

What should you do after you make money? Obviously there are things you want to buy and places you want to see, but one of the smarter things you can do with your money is save. This doesn’t mean you shouldn’t buy anything. Rather, it means that you should be smart about what you buy. For example, buying the latest iPhone model may not be the best idea if you can barely afford rent for the next month. Instead of buying the latest iPhone, a better decision would be to save that money. Saving has many benefits such as providing a cushion for a possible financial emergency or unexpected expense. Furthermore, you can save for expensive future purchases or avoid falling into debt, which would likely cause lots of stress.

What is saving? Saving is simply not spending your income. It means deciding that you don't need to have that new Nike shoe or designer item. Instead, it means taking the money that you would’ve spent on those items and keeping it safe for possible future purposes. 

Usually, people put their savings in their savings accounts (like the name suggests). A savings account is a type of bank account where you are able to deposit your money and even receive interest on it as well. While most banks do not give back high interest rates, it is still adding to your money and a great way to save up.

One way to make sure that you save enough money is to budget out a certain amount of your money to be saved. This entails first setting up a budget plan, but budgeting out a portion of your income to be placed into your savings ensures that you can meet your financial goals efficiently.

However, saving too much isn’t good either. If you save too much then it can cause unnecessary financial stress during your working years because you will not have enough money to spend and live a comfortable life. A good sign that you are saving too much is that you are constantly taking money out of your savings in order to make necessary purchases.

Another downside to saving is that it is low-risk but also low-reward compared to investing. While you can always be sure the bank will have your money relatively safe, the somewhat low interest rates don’t increase the money that you put into your account by that much. Furthermore, this increase is lowered even more due to inflation. As inflation goes up, the value of your money goes down. Because savings accounts don’t increase your money based on inflation, your money doesn’t actually increase that much due to the fact that it is losing some value even if there is an interest rate. 

When trying to save, it is important to always consider the cost and opportunity cost of what you are buying. For example, do you want to eat out at a nice restaurant today, or do you want to stay home and cook yourself a meal? In order to save money the obvious option is to eat at home because it simply costs less to make food than buy it at a restaurant. However, the point of saving is not to always choose to eat at home in order to prevent spending, but it is to be smarter about choosing whether or not to eat out.

While saving is not always the best thing to do with your income, to a great extent, saving is very useful and important to being financially literate.