How to be Friends with Your Money (And Manage it too!)

For 10 years, I took a below-market salary. Instead, I opted for equity in my start-up. Intentionally, I paid myself last. Gambled on equity, but ignored savings. Convinced it would give me much higher returns. When things didn’t turn out as expected, I was cash-strapped. When I needed money the most, I found myself with the least.

Saving isn’t sexy

We should save. We get it. Yet, we don’t. Because saving isn’t sexy. Or fun. The future seems so far off.

“Retirement? I haven’t even started earning properly yet! And we’re not making enough money ... And we’ll miss out on life ...”

Our friends are putting up reels of sundowners in Goa. Why should we save?

So, we postpone. We’ll start tomorrow. Next year. Just not today.

But We should save.

Because. Life. Is. Crazy.

Almost like a Bollywood movie. One moment, we’re happily dancing around a tree. Next moment, we’re hit with medical emergencies, job losses, an unexpected death in the family.

Also ...

Because. We. Have. Dreams.

That house, that car, that fancy vacation. Plus our retirement. Our money today has to pay for our desires tomorrow. Savings give you the power to walk away from a job you hate. The power to handle a medical emergency without depleting your reserves. The power to move into your own place. The power to live life on your terms. You don’t have to give up what you love.

How do I start saving?

Unless you know why you’re saving, you don’t know how much to save. If you’re just ‘saving’, it’s a random number. If you don’t hit it, you don’t care. So, whatever you earn will always be little. Whatever you spend, you’ll always feel guilty. Whatever you save and invest, you’ll never know if it’s enough. But if you’re ‘saving for a vacation’ or ‘saving for a house’, the goal gives you purpose. It sharpens your decisions. 

List your goals. When do you want to achieve them?

Long-term goals: Typically more than 10 years. Example: A down payment on a house.

Medium-term goals: Typically goals you want to achieve in three to 10 years. Example: Higher education.

Short-term goals: Less than three years. Example: a holiday.

Figure out how much each goal will cost you.

Quote an approximate current price for each goal. The price won’t stay the same forever, though. Because, inflation.

Calculate the ‘future price’ of your goal, based on the time frame you’ve set. Assume an annual inflation rate of approximately six per cent.

Build the saving mindset.

Your target should be to save at least 20 per cent of your salary. Remember the 50:30:20 budget rule: Spend 50 per cent of your salary on essential spends. 30 per cent on your desires. 20 per cent on your savings (and investments).

Don’t just save. Invest.

We save to invest. Not to let the money rot in a bank account. These investments will generate returns to cover short/medium/long-term goals. Where to invest is just as important as how much to save. That doesn’t always mean investing where you get the maximum returns. It means understanding how different investments work for different goals. Mix and match to hit your goals.

10 Tips to Help You Save More

Automate your savings. If we have money in the bank, we tend to spend it. It’s not always easy to do the right thing. So, make the right thing easy!

Sign up for as much EPF deduction as you can, so it never reaches you. Do monthly SIPs. Open a separate investment account. As soon as your salary hits, sweep your investment amount to that account.

30-day rule: If you really want to buy something big, wait for 30 days. Chances are you’ll decide you don’t need it. Chances are you’ll decide you don’t need it.

Try a fortnightly money ‘fast’. Once a week or fortnight, don’t spend on anything. Anything. Spoiler: This will require some advance preparation. Take food from home. Carpool.

Choose debit/UPI over credit cards. Debit/UPI is money you actually have. Credit cards give you the illusion of money that you may not actually have. If you don’t have it, you can’t spend it. The best part? It’s free (a lot of places still levy a surcharge on credit cards)!

Make shopping lists and stick to them Do this even if you’re buying online.

Rent if you’re not a frequent user. Today, the mantra is ‘reduce, reuse’.

Use deals and discount sites as much as you can. There’s no shame in it.

Pay off your loans faster. Early repayment saves on interest. For example: Pay one extra EMI/year (13 instead of 12). Increase that EMI by 10 per cent every year. A 25-year loan reduces to 10 years. And you save 60 per cent on your interest amount!

Buy life insurance when you’re young. You pay a lower premium and get longer coverage.

Excerpted from Make Epic Money by Ankur Warikoo, with permission from Penguin Random House India. Ankur has lent his voice to the audiobook, which is now streaming on Audible and accessible for listeners on the go. With his narration, financial jargon becomes simple and the audio format makes it easy to follow along wherever you are.

Want more tips from Ankur Warikoo? Read RD's interview with the entrepreneur here.