Warren Buffet said, that we should not save what is left after spending but spend what is left after savings. And these words come from a person who is regarded as the Best Ever Investor in Human History.
People are not able to plan for their savings because there is no financial plan that they have which clearly spells the requirement for savings to meet your future goals. Many a times, people find that their financial position is good as they are able to meet their current liabilities with their current income. Taking this as background, as their income increases, so their expenses. There are times, when people go to unplanned exotic vacations as they have received bonus or impulsive buying takes place as bank balances is good enough to support this.
What is your definition:
Savings have to be planned well in advanced and it should be quantified as well. At best what people do is that they make tax saving investment and that too at the end of the year under compulsion. They end up investing where others are also making their investments. If there is no plan to save, people land up having huge surpluses in their banks which is does not give any returns to boast off or they land up having in financial crisis as some huge expenditure have come on their way for which there was no planning.
A good savings plan should be drawn taking inflation factor, future income growth etc. But before we plan to save for future, you must ensure that you have a solid base, which means planning for any contingency, including disability and death etc. So, depending on the consistency of income, one must at least have 4-6 months’ worth of expenses in fixed deposits, floating rate funds or investments against which overdrafts can be taken. Additionally, you need to ensure that you have sufficient medical cover for your dependents.
Then for long term goals a product mix of equity debt should be taken more tilted towards equity and for short to medium goals, debt should be more than equity.
Let each goal is defined in terms of expected time of occurrence, its expected cost on your wallet and how should you be approaching them with the right mix of equity and debt.
We will try explain how tackle major goals in our life like that of retirement, kids higher education etc later.
Would you like to share what is your strategy?