“The art is not in making money but in keeping it,” goes the famous proverb. Clearly, our ancestors valued saving money for a rainy day. Today, with sizzling economies and skyrocketing paychecks, the financial paradigm has witnessed a silent shift from “how to save money” to “how to earn money”.
Part of the reason is lack of financial awareness and growing consumer needs, which makes us spend more overlooking the essential aspect of saving. For women, spending takes an even higher priority at times as they cater to not just themselves but for their entire family.
Global trends in saving
How to save money may seem an easy question to answer, but in fact is a global challenge. A recent survey conducted by Bankrate showed that 20% of US citizens have absolutely zero savings component of their annual earnings. Clearly, saving money has dropped off the financial radar with most millennials even spending all their earnings month after month.
Saving trends in India, not far from the global outlook
Indians are not far behind when it comes to giving savings a convenient miss. India’s overall savings rate has dropped to 30% from 34.6% over a five-year period ending FY2016-17. A report titled Arth Samvaad published by India Ratings and Research reveals that the average household saving rate has declined from 23.6% to 16.3% over the same period.
Evidently, Indian households were not focusing on how to save money as much as they should have been. Of late, however, this trend has turned a corner. A recent times of India survey shows that the total financial savings for Indian households is today at a seven-year high of 11.1% of their income for 2017-18, up from 9.1% from 2016-17.
Women and their natural saving instincts
Non-saving is not a personal choice but can be a financial disaster. Interestingly, women who are often wrongly bracketed as financial novices, are more natural savers. They sure know how to save money. Look no further than your mother. Remember the financial savings in a piggy bank for kids or wads of cash stuffed in biscuit jars or wardrobes shelves in your home?
While memes and internet jokes may still abound on women and their shopping escapades, there is no escaping the fact that women are much more prudent natural savers than their male counterparts.
Understanding various aspects of financial planning
Financial planning needs a holistic viewpoint. Focusing merely on earning, savings, or investing alone cannot ensure you laugh all the way to the bank. While women are naturally good savers, that alone may not be enough. Apart from knowing how to save money, they need invest equal time and focus on other aspects of financial planning. These include aspects like earnings, investing, borrowing, insuring, and taxation.
- Earnings: Earnings are best understood as a sum total of your financial inflows, or sources of money. Earnings can be gauged either monthly or annually from all sources without catering to any of your expenses. Spending more than what you earn means you have a negative cash flow, and vice versa.
- Savings: Savings is your ability to retain a surplus amount after you use your earnings to cater to your basic needs. This aspect of financial planning is characterized by various objectives like financial safety for the future or for a specific task. The objective can be short term or long term savings depending on your financial plan. Saving financial instruments come with high liquidity, and minimal risks, thereby ensuring no loss of capital.
- Investing: Investments are characterized by the objective of generating returns. They are done in financial assets that can offer higher returns than inflation. Investments are typically medium to long term, have a lower liquidity, and come with a higher risk element or potential loss.
- Borrowing: Borrowing or loans are a financial liability that allows you to overcome any financial need. It can be short term like personal loans, or long term like a housing loan. Borrowing is best resorted to when you have an apt repayment plan in place to ensure optimum financial health.
- Insurance: Insurance is an arrangement where you outsource your risks by opting for an insurance plan. Here, the insurer pools in all such amounts and pays based on claim against the insured event. Insurance can be for life, health, or other assets like homes or automobiles. The insurance company offers a protection for a pre-determined amount for any loss by seeking an annual premium amount.
- Taxation: Taxation is where you pay as tax on your annual earnings. Taxation has a tax planning component, which is an essential part of financial planning. Through tax planning, you can reduce your tax liability by investing in tax saving instruments or by availing tax exemptions.
Savings and why is it important to save
A financial emergency can happen to just about anyone. Having a sudden health scare, a red slip, or any sudden expenses all can be managed if one has a savings component. Having liquid cash or savings can be the support system when faced with any such eventuality.
For women, savings become even more essential as they cater not only to themselves but to virtually the entire household. Saving regularly also allows for making a short term lump sum investment or a planned purchase without denting one’s wallet.
How to analyze your financial position before planning on saving
- See if you are you goal ready: The first yardstick is to evaluate your goals and your finances. From future education of your children to marriage expenses, check if you have goal centric financial plans in place. If not, devise a financial plan that focuses on short, medium, and long term saving as per your needs.
- Evaluate short and medium term cash flows: Analyze your short term or monthly cash flows as well as annual cash flows. Any negative cash flow for either short or long term is reason enough to raise a red flag. In that case, reevaluate your financial plan.
- Check if you have an emergency strategy: Life may not always—and usually does not—go as per plan. Do you have a financial strategy to counter any such emergencies like sudden job loss, pregnancy, or a health scare? If not, it is time to go to the drawing table and devise a financial plan.
- Evaluate yourself on the 50-20-30 rule yardstick: This popular rule stipulates that not more than 50% of your monthly income is to be utilized towards monthly living expenses. The next 20% must go towards savings while the remaining 30% towards investments. If you are spending more in proportion to any of these, you need to reevaluate your financial plan.
Savings concepts and approaches in saving for women
Many women believe that saving is all about taking some percentage of monthly income and safeguarding it for the future. Savings work best when it is done as per your specific and personalized need.
- Long-term goal-based saving: Long-term goal-based saving can be for anything from saving for your child’s marriage to buying an apartment. Depending on what you are saving for, invest in suitable financial instruments that can help you bring one step closer to your goal. For example, if your plan is to save for your child’s marriage, you can invest in gold when prices dip instead of saving cash in bank fixed deposits.
- Short-term or target-based: Short-term goals can vary from buying a home appliance to saving for the next holiday. Knowing your short term goals can help you save the required amount without going overboard or falling short.
- Percentage-of-income based saving: The 50-20-30 rule discussed above is the best example of a percentage-of-income based saving. This works when there is sufficient surplus over and above your spend.
- Liability-based savings: If you have existing loans and other financial liabilities, save after you have met your liabilities. Addressing your liabilities will take more precedence than savings in that case. Refinancing existing loans can be considered to offset extra expenses and direct them towards savings.
- Month-on-month positive: Month-on-month positive is a saving strategy where you evaluate your goals at the end of each month. After catering for all your expenses and liabilities, ensure a net positive at the end of the month. This means your savings are more than zero by the month end.
- Rolling quarter positive savings: A rolling quarter positive savings plan is where you are net positive at the end of each quarter. For someone with an irregular income, a rolling quarter positive savings may work well compared to a month-on-month positive.
Popular savings products in the market
- Cash: This is a popular way to squirrel away chunks of money to ensure you have some funds for a rainy day. Savings in cash is the least prudent method as the currency gains zero interest. It can also be easily forgotten as you hide it in your wardrobe or locker.
- Fixed Deposits: Bank FDs are a great saving tool. They are both secure and highly liquid. What’s more, you can easily avail a credit card or a loan over your bank FD.
- Debt Mutual Funds: Debt mutual funds like liquid funds allow for easy monthly savings using a SIP. Being secure and highly liquid, debt funds are a good saving option without denting your monthly budget.
- Small saving instruments: Small saving instruments like PPF, Kisan Vikas Patras, and Sukanya Samridhi Yojana allow you to invest for a specific goal. The investments are backed by the government, making them highly secure. Some of these instruments have a cap ensuring continuity in investments.
- Discounts and cash-back offers: Do not overlook schemes like ‘Buy one get one free’ (BOGO) offers, cash backs, discount vouchers, and loyalty points. All these can add up to substantial savings, especially when opting for any specific monthly purchases.
Types of savers
- The new age millennial: The millennial generation, with their access to quality education, end up earning higher salaries at a young age. Equally, they are big spenders, resulting in lesser savings. Spend what you earn is their mantra. Say you are earning big dollars but find yourself broke before the month end. Then opt for instruments like mutual fund SIPS and bank FDs as a great start to developing the savings mindset.
- The spendthrift diva: The spendthrift diva spends on things she does not even need. Thankfully, controlling impulsive purchases can be easy if you stop using your credit card. Opt for a hybrid bank account and insist on cash payments for purchases to increase your possible savings. Remember this adage by famous billionaire investor Warren Buffet: “If you buy things you don’t need, you will soon sell things you need.”
- The on-and-off saver: Say you are the “one month on and one month off” kind of save. Then you are better off saving towards a certain short or long term goal. With a goal in mind, you are more likely to save to achieve that goal. You are also more likely to convert that into a regular habit.
- The all-or-nothing saver: All-or-nothing savers wait for a huge inflow of funds like bonuses, which they transfer towards savings. A mutual fund SIP can help ensure you are more regular and less erratic towards savings.
- The financially aware working woman: Opt for a women-specific savings account over a regular saving account. Women-centric savings bank accounts offer extensive reward programs and cash backs. Banks like Kotak Mahindra Bank, for example, offer discount on locker rentals for the first year for such accounts. Others like IDBI SuperShakti Savings Account offer two free bank accounts for children below 8 years. All these benefits may appear to be small but can add up to some sustained savings. Consider bank FDs, recurring deposits, and post office deposits, which offer assured returns and high liquidity.
- The harried homemaker: As a homemaker with no earnings, it is essential to ensure you maximize all your savings. Instead of a regular women’s savings account, opt for a hybrid savings account. Beyond a pre-determined amount, the savings are automatically fixed as a bank FD, giving you a higher rate of interest. You can also opt for SIP and invest in gold mutual funds. This helps you earn the same return as physical gold with minimal investment.
- The widowed or single parent: As a single parent or a widow, the onus of safeguarding your future along with your children is on you. Focus on liquid funds that offer sufficient returns and cater to at least 3 months of expenses. Saving instruments must include tax saving and low cost instruments like PPF and NPS. Also opt for a term insurance plan to safeguard against potential financial liabilities for your children with minimal premium outgo.
Smart hacks to get ahead in savings
- Avail discounts on entertainment costs: Opt for discounts and cash backs when spending on entertainment costs. For example, watching a movie on weekdays may turn out to be cheaper than over the weekends. Time your entertainment costs to maximize discount availing opportunities.
- Go the DIY way for gifting: Gifting family and friends or your kid’s friends can often stretch your wallet. Instead of overspending on such gifts, go the Do-It-Yourself way. This will enhance your creativity and cut down on unwanted expenses.
- Time your big ticket purchases: Making big ticket purchases is normally high on every woman’s wish list. However, timing such purchases just right can lead to truckloads of savings. Look out for festive discounts or online deals to make best use of such opportunities.
- Make use of discounted deals for monthly grocery shopping: Time your grocery shopping needs with discounted monthly deals offered by various stores. You can also use your co-branded credit card for recurring grocery purchases for those reward points and cash backs.
Saving time is saving money
Savings is not related to just your finances. Saving time is just as essential. With free time on hand, you can always start some freelance service, teaching, consulting, or create a newer earning opportunity. Save time by making use of productivity or financial planning tools. You can then devote the saved time towards creating additional sources of income.
Make use of automated savings tools
Keeping a track of your expenses and savings is worth its weight in gold. You can use a simple tool like Microsoft Excel for noting all your expenses or diary entries over mental notes. Also, explore popular automated savings apps like ‘Qapital’, which is useful in helping set financial goals. Another one is the ‘Digit’ app, which can automatically calculate what you can save as per your income and spending patterns.
Seek services of Certified Financial Planners
Everyone has different financial goals and incomes. Seek the services of a Certified Financial Planner to ensure you are going for the right saving plan as per your goals. You can search for qualified Certified Financial Planner online or offline through references. Consider a visit to a Certified Financial Planner whenever life offers you a new beginning like marriage or the birth of a child, or pushes you into adversity, like the demise of a working spouse.
While women intuitively know how to save money, having a customized saving plan can ensure your savings work optimally. Importantly, your saving plan should be in the context of a comprehensive financial plan that meets your life’s financial objectives.