Developing Savings as a Habit is now Easy & Awarding

Someone once said that money looks better in a bank account than on your feet.

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Guess they probably weren’t looking at the right shoes, but there’s merit in the statement. 

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Each of us has picked up habits along the way; some good, some bad (looking at your packet of cigarettes that will be over before this article is complete).

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But an important habit that millennials and Gen Z don't seem to develop is saving money. 

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The term “savings” carries a positive connotation. We all may aspire to be “good” at saving money, but we're seldom told how to reach that point in specific and practical terms.

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An empirical study conducted by Deloitte found that the Indian millennial saves less than 10% of their income on average.

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This number is shocking because financial planners recommend that you set aside at least 15% of your income for decades if you want to retire comfortably.

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So clearly something is needed to remedy the situation and we at Jar are here to rescue you.

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In this article, we’ll be exploring how the simple habit of saving can increase money in your bank account while ensuring that you can buy the prettiest shoes out there.

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If you’ve picked up on the nuance between buying expensive shoes and having the ability to buy them, congratulations, you are already one step closer to developing this amazing habit. 

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How do we define a habit? ‘A settled or regular tendency or practice, especially one that is hard to give up.

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Going by that definition, we’re all familiar that spending money, which is the opposite of saving money, is very hard to give up, especially in a time where it's easier to buy stuff from Instagram’s targeted advertisements than to heat some milk on a stove.

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The question remains, how do we develop the habit of saving. 

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A great place to understand how to develop this habit, or any habit for that matter, is James Clear’s book ‘Atomic Habits’.

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James tells us that forming any habit is a function of crafting your environment to ensure that your environment pushes you to take a certain action.

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Can’t get back to that voracious reading habit you had in school?

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Try leaving a book on your bed in the morning so that you're forced to read it when you get into bed at night. 

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Now taking this logic to cultivate the habit of saving, the first step will be for you to examine your environment and behavior and identify those areas that are the Bermuda Triangle to your savings.

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Bear with us, it’s difficult to realize that you really did not need that Captain America-themed bathroom décor, but it is important to identify these areas to protect your money from yourself.

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Learn to identify the clutter in your habits and get rid of it.

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The next step is to put in place a mechanism that compels you to set aside a certain amount of your paycheck every month.

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This is where the concept of ‘paying yourself first’ comes in. Paying yourself first means setting aside a predetermined amount of money for saving every time you are paid before using any of that money for spending.

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For example, when you deposit your paycheck every month, put aside x amount of money into a savings account and the remainder into an expenditure account.

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Obviously, the success of this method depends on your ability to refrain from dipping into your savings account to buy that Iron Man helmet you absolutely do not need. 

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If not every month, you start with something smaller, like saving every day, even if it's Rs.10. Just save it. It might seem like a small amount but it goes a long way if you're consistent.

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One of the easiest ways to get into the habit of saving is to automate your savings. Just set up some automatic method of moving your money around.

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It'll help you adjust your lifestyle around what you end up as 'take home’ pay. 

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Just like dipping into the cookie jar on your diet adds an inch to your waist, dipping into your savings trims many edges off your wallet. 

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You’d have guessed that like all systems, the cornerstone of this one too is to strictly adhere to it without making convenient justifications.

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If you can't stick to the rules, you'll lose all progress made so far.

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People often defer saving money because they feel they don’t earn enough to save.

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Honestly, it’s mighty presumptuous for a person to sit behind a computer screen and say that isn’t true for everyone.

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But what can be said with confidence is that you don’t need a fat paycheck to save money. Yes. Saving Rs 300 on a Rs 1000 paycheck is the same as saving Rs 30,000 on a Rs 1,00,000 paycheck.

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The trick to saving and making your money grow is not to start with large sums of money, it is to start as early as possible.

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The younger you are, the more advantage you have. Really. Warren Buffet bought his first stock at age 11. He is worth 107 billion USD today.

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His biggest regret is not saving and investing his money before he was 11.

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Time literally is money. Remember, your impatience will leave you broke and your patience will make you a fortune. How does this fortune accrue? Now we’re getting to the magical bits.

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Contrary to popular belief, your money will not grow if you leave it in a bank account. In fact, leaving your money in a bank account (or a pillowcase under your bed) will reduce its value.

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This is because of the concept of inflation, that is, a general increase in prices and a fall in the purchasing value of money.

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The average rate of inflation in India for the past 10 years is 7.6%. This means that Rs 100 that you save today will be worth Rs 92.4 tomorrow.

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So, it's evident that to preserve the value of our money, we have to store money such that it grows in value.

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Saving money is the first step to getting wealthy, the second step is to invest that money.

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There are a multitude of investment options available to today’s millennials and Gen Z, ranging from the evergreen post office saving schemes to the internet’s favorite cryptocurrency.

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But what is common to all these investment routes is the concept of compounding. 

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Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

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To put it simply, it's "interest on interest," and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.

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In other words, 10% simple interest on Rs 100 will fetch you Rs 120 at the end of two years, while 10% compound interest on Rs 100 will fetch you Rs 121 at the end of two years.

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Now this tremendous difference of Rs. 1 between the results of simple interest and compound interest may not be enough to make you believe in the power of compounding.

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But, knowing that 81.5 billion USD appeared in Warren Buffet’s net worth only after his 65th birthday should make you realize two things:

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• Compounding is an extremely powerful force that grows your principal amount and your interest amount together;

• The longer the period for which compound interest is allowed to accrue, the more exponential the growth in your wealth. 

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In short, saving Rs 100 every day at a compound interest of 10% per annum will give you Rs 1 crore after 23 years 9 months.

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It’s tough to convince yourself to wait for 23 years before seeing a crore, especially when the kid up the street who failed maths in high school is a crypto millionaire today.

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But when you remember that a pack of cigarettes costs around Rs 200, saving Rs 100 daily instead of smoking will ensure that you have a crore at the end of 23 years and that you’re alive to spend it. 

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So, there you have it, the secret to getting wealthy has now been shared with you. Start saving a portion of your paycheck as early as possible with discipline.

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Invest it and let compounding work its magic. Plant your trees today so that you can enjoy their shade in years to come. Happy Investing!