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Why saving is so difficult |
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Rattan Chugh
ExpressMoney
Monday, September 15, 2008
How do we combat our tendency to splurge when our income rises? And what methods can we adopt to begin saving in a disciplined manner?
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Although income levels have risen rapidly in the last decade, the stress on account of money-related issues has only got worse. Apart from increase in salaries, the trend of both the partners working has also gained ground. One would imagine that this would put a lot more money in the hands of people, leading to less money related worries and greater financial security. But apparently that is not the case.
Most of the increase in earning has gone into funding more lavish lifestyles. Spending patterns are directly linked with the money we make. We spend more as we earn more. Even worse, we take more loans as our incomes rise. With increase in salary, we buy bigger cars, bigger houses and upgrade our lifestyle. This leaves little money for building assets that will appreciate in value overtime, which is the key to financial security. |
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Why saving is difficult |
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It is a no-brainer that saving is crucial for long term financial security. But often it is the last thing we want to do. Living with the discipline of regular saving appears hard and unpleasant. It’s like we want good health, but find it difficult to pull ourselves out of bed for a morning jog.
To many the word “saving” connotes “deprivation” i.e. denying ourselves of things that we wish to indulge ourselves with. Further, rewards for saving come only in the future, while spending provides instant gratification. Moreover, there is no external acknowledgement for saving money, whereas the whole world watches and envies you when you drive around in a big car. But you receive no such feedback or external reinforcement for your behaviour when you invest money, say for retirement.
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Context and Impact
One way to motivate ourselves to save is to clearly define the purpose for which we want to save. Different people may have different priorities. For some it could be a secure retired life while for others it could be funding their sabbatical. Once the goal is established, it is a matter of taking consistent action that will move you towards that goal. If you are already saving your committed amount, then the rest of the money is available to you for what ever you want to do with it. However, in the event of a conflict between your logical and your emotional mind, just pause and ask yourself: “What means the most to me in life?” Is replacing your car this year worth delaying your retirement by a few more years? A lot of us get into the pitfall of instant gratification because we are not aware of its impact. Misplaced priorities and lack of planning are two big obstacles in the way of our financial well-being.
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Build support structures |
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It is only human to resist discipline. That’s why most New Year resolutions do not survive for long. While inspiration and passions are good, they lose steam very soon. The best way to make sure that you achieve your goals is to build structures that will support them. For example salaried people have a support structure in the form of saving through Employee Provident Fund schemes. Just imagine if PF contribution was not deducted from the salary and was left for the employees to save on their own, how many would have consistently done the saving and have had the corpus at the time of retirement? So the key to saving regularly is to make the saving automatic with little intervention required from you. Systematic Investment Plans (SIPs) and direct debits are more likely to run the whole tenure than manual cutting of cheques.
Finally, merely knowing that saving is important is not good enough. Consistent action aligned to our long term goals is the key to financial well-being.
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