Income-Saving-Investment-Are you on track?

We all know that Income generation is very important to fulfill our lifetime financial goals. This will automatically generate to saving and investing. But the biggest hurdle is how much % of our income we are saving and again how much % of that saving will turn to investment.

Let us take an example of my rural area client with whom I  did my first meeting yesterday, his monthly income is Rs.20,000. He lives in a town of remote Karnataka. He works in a Cement factory as a manager of sales department. With this meager income he approached me for Financial Planning. First I shocked by going through his background. Reason is, he belongs to such an area that people will not think beyond LIC, Post Office or Bank FD for their savings. The second thing is, that particular district where he reside is tagged as the most backward areas of Karnataka. The third thing is, he is ready to invest around 40% of his salary even though he have four dependents (spouse and 3 kids). What it indicates? Dear IT guys or so called high earning educated where are you heading? What lessons can we learn from this guy?

We all have this big misconception that if someone is earning high then he is rich but he will be poor if he doesn’t save and invest properly. Suppose Mr.X whose monthly income is Rs.1, 00,000 and his saving and investing includes around Rs.10,000 then who will be richer after certain period? Mr.X or my rural area client about whom I shared above? Definitely that rural guy than this high earning and at the same time high expensive Mr.X.

But how much can we save? What is the ideal proportion to be considered? This can be tracked by the ratio called “Saving Ratio”. Simple formula to calculate this is, divide your savings to your income. Ideal ratio will be 25%. But if it is more than that much safer.

Now one more question-Is Saving means Investing? No saving is nothing but we are keeping aside some amount of our income. It will be idle until we invest and generate some income from this. So saving may give us the power of liquidity but will not fulfill our financial goals. Hence we need to invest according to our financial goals. So a big savers may not turn into big financial successful people until they invest that saving in a proper way.

And final call is-Generating a high income is very much important at the same time generating a high saving habit is also equally important. Once generating that saving habit it is a must for all to start investing based on our goals. Otherwise our savings will diminish day by day even if we keep in safe locker or in our savings account. Because inflation is the all time-consuming part of our money.

A small information sharing-Even though I am staying in Bangalore called a IT hub, I got my first fee based client from non IT industry. I reduced my fee of around 80% to that rural guy 🙂

13 Comments

  1. I am not educated about financial investments. I am going to retire from PSU in mid 2017. I will be getting pension of about 20000pm. How shall i go for investing my retirement corpus of about 30 lakhs to get monthly income. No future goal is pending except running current expenses. Can u advise accordingly.

    Reply
    • Verma-It is hard to suggest a plan in commenting without knowing much about you.

      Reply
  2. Boss what according to you would be the ideal investment plan? Keeping in mind the decreasing PPF interest rates y-o-y, less returns on FD’s and greater risks in Equities, along with rising inflation where a poor guy is supposed to invest? I mentioned poor here because being in an IT industry i havent started saving yet. Not because i didnt want to but because the so called salary we are told to be given is way beyond than what we actually are given. It will be really helpful if you can throw some light on an ideal investment plan if someone can save about 25% of his income.

    Reply
    • Ashish-Each investment decision depends on a lot of things like your risk appetite, financial goals or how we can best achieve your goals by diversifying your investment. So we can’t say generically that PPF, FDs or Equity is best to invest in. Making a saving habit from your earnings will be the first step and look at others who may be earning less than you but still having a saving habit. So either you may be in IT or other industry OR whether your monthly earnings in lakhs or thousands it does not matter until and unless you start to think seriously about your finance and saving habit.

      Saving 25% of your income is a good habit but as I mentioned above product or category of investment selection depends on a lot of things.

      Reply
  3. Don’t say Income – Expenses = savings

    say Income – Savings = Expenses

    Reply
    • Sandeep-Wonderful saying 🙂 Hope all will follow and implement in their life.

      Reply
      • Thanks, Basu.

        Reply
        • Sandeep-Pleasure 🙂

          Reply
  4. Dear Santu,

    Before going for SIP. invest your time in reading. understand what is MF & how it works.

    Reply
    • Roshan-Well said 🙂

      Reply
  5. Hi,
    Thanx for your reply. I am also investing in only Bank FDs. So u can understand I am not so much interested in taking risk. better You can say I am afraid of taking risk while I want to take risk if I can understand how to handle the risk. Investment I do 2k per month so want to put that in SIP if I get any good product.

    Reply
  6. Hi,

    I have no Idea about SIP. Please let me know which one I should choose for SIP. I mean mid-cap, large cap type investments. Please consider me as “zero-knowledge-person-landed-into-investment field”.

    Reply
    • Santu-Without understanding your financial goals, risk appetite and your current investment it is premature for me to recommend you any product. Hence do request you to share the same.

      Reply

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