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If you’re 20-something and want to be a crorepati, start saving NOW

A Rs 60k phone today, or a new phone every month (yes)? Take your pick, millennials

Kumar Shankar Roy 3 August 2017, 6:37 PM
Get your finances sorted if you want to live life like a millionaire

Get your finances sorted if you want to live life like a millionaire

If you’re 20-something, 'savings' is a word that makes you think of older people. And online deals. Your life is very likely to play out like this: day 10 of the month, and you’re suddenly sanksari urban poor — no partying. Another 20 days before your SMS says 'Rs XXXXX has been credited to your account'. Phew.

Sooner or later, though, real life is going to hit you. The free-flowing booze and online shopping binges are not good friends with a modest salary.

The good news is that 'saving' is no monster. It’s easy and can be as much fun as spending. The trick: delay gratification by a bit. Earn, save and spend — that’s the three-step process to follow. Just don’t put 'spend' before 'save'. Here are a few hacks.

1. Know where your money is going

My father smokes a lot. He has been a two-packet-a-day man for four decades now. That's 40 cigarettes a day, and Rs 14,600 a year. Over the course of 40 years, my old man smoked cigarettes approximately worth Rs 6 lakh. At an average price of Rs 7 per cigarette, that's Rs 42 lakh, which daddy dearest blew up in smoke —  the price of an Audi A4 sedan.

A few years ago, he confessed that had he known how much money he spent on smoking, he would have done something about it. Too late. But not for you.

Smoking may not be your thing. It could be booze, disc-hopping, clothes, gadgets or holidays. Do some math and see how much of your money is going into one of these. You don't need to stop. But you do want to control some. Start by making an approximate budget with money earmarked for all types of expenditure, so you know exactly where your money is going.

2. Save 10 per cent of your take-home

I have time. I will indulge myself for 2-3 years and then save. My parents don't depend on me.

These are lame excuses. Assume you can save Rs 2,000 per month. If you don't save for a year, you don't save Rs 24,000. In four years, you don’t save a lakh.

The quickest way to save is to keep some money aside, say, 10 per cent of your take-home salary. This mandatory 10 per cent should be put in a place from where you can't easily withdraw it. With a lock-in period, you won’t be tempted to. Saving money in socks, purse or a hidden place is not an option. Go for recurring deposits (RD) in banks, insurance premiums, tax saving instruments such as mutual funds (MF) and post office products.

3. Make a goal

The human mind can play tricks on itself. Without purpose, you will come up with ingenuous excuses to liquidate savings and investments. The goal could be that much-awaited Goa vacay, a super-bike or that Manish Malhotra lehenga in three years. Such a goal will create a need in your mind and make you work towards achieving it. Research says this works 90 per cent of the time.

4. The final trick

Not all millionaires inherited their money. They saved a bulk of their earnings. You can make small behavioral changes to be like them. For instance, they did not go out buying a new smartphone every time a company launched one. Say, a new stylish phone makes waves in the market. It costs Rs 60,000. That's more than your monthly salary. So you swipe the credit card.

Credit card EMIs may be easy to pay, but they extract 20-40 percent interest annually. What if I told you you could buy a new phone every month if you waited a few years? This isn't a rude joke.

A one-time investment of Rs 60,000 (say in stocks or MFs) that returns 19 percent annually will earn you a total of Rs 1.04 crore over 30 years. Now, put that Rs 1.04 crore in a bank with a 7 per cent fixed return. And you get Rs 7.2 lakh in interest every year. Well, you can buy a new phone with that money every month. Plus, you’re a crorepati anyway.

Feel like getting started already?

(Kumar Shankar Roy is a business journalist, specialising in personal finance and stocks)

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