Importance of discipline in savings and investments

Despite our best intentions, we usually end up spending more than we planned for. Each month comes with its own list of things that have to be done, like someone’s wedding, a celebration, a vacation for the kids, a treat for friends to celebrate a raise, the festival season, buying things for the home, investing in a house, investing in a car, and the list goes on.

The long list of ‘must dos’ of expenses pushes our ‘should do’ of savings and investment to the far corner of our guilt and we promise ourselves sheepishly, “Next month I will start.” The next month comes and goes with its own list of expenses that you ‘must do’.

If this scenario rings a bell for you then it is high time that you take a serious note of your expenses vis a vis your savings and most importantly your investments.

With the festive season round the corner, the burden on your income will increase manifold as expenditure on celebrations, gifts, entertainment and purchases like gold, car or household goods takes centre stage. This is a good time to think about the status of your savings and plan it in a disciplined way, so that the next month could actually see you invest instead of ‘plan to invest’.

Why should disciplined savings be your top priority?

The popular adage goes “A penny saved is a penny earned.” Our expenses will always keep us on our toes. It is the discipline with which we align our life goals to take stock of what we need to save to reach those goals that will ultimately help us achieve these goals.

Without the discipline of savings, you will remain caught up in unnecessary spending and find it difficult to plan for your financial goals like college education for your children, medical insurance for yourself and your dependents, or building a corpus to remain financially independent in your retirement.

Is savings enough to achieve your financial goals?

Savings is only the first step to realising your financial goals. Mere savings is just going to leave your money idle in your bank account. You need to invest this money through proper instruments for the creation of wealth, depending on your risk tolerance, to reach your financial goals. A regular plan of investment will mean that you will be stress free from financial worries as you keep moving towards your goal. Not only this, a disciplined approach to savings and investment will leave you better prepared to handle any sudden untoward exigencies.

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How can you inculcate discipline in your savings and investments?

The following steps can help you to make sure that you are following a disciplined approach to saving and investments:

1. Prepare a monthly budget: A monthly budget of your expenses is necessary for these two main reasons:


1. It helps you see which expenses are recurring and mandatory to maintain your living conditions in a reasonable manner. These expenses will include rent, electricity, phone bills, EMIs on your house loan or vehicle, children’s fees, internet, ration and grocery etc.


2. The budget will also make you realise that there are certain expenses that can be weeded out from your monthly expenditure. For example, you may realise that you can actually settle down for 2 dine out events with your family or friends instead of going out every week. When you make the budget you will see that there are certain expenses that can be managed in far lesser amounts than what you were doing when you were spending without an aim to save and invest.
2. Identify your financial goals: Putting down your goals in black and white is like a wake-up call and it will make you realise that there is no time to lose if you really intend to achieve those goals. Along with identifying your specific goals, assign a financial value to those goals and also determine how much time you have for each of the goals. Categorise your goals into short term, mid-term and long term goals.
   
   For example, as one of your long-term goals you may want to finance your child's college education. Let us say your child is 8 years old and will be requiring the funds when he is 18, then you have about 10 years to accumulate the funds. A proper research on what you expect that your child will study in college will give you a ballpark value for this goal. If you work backwards from this figure, you will be able to determine how much you will need to take out from your earnings now to reach that goal.
   
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3. Start investing: Once you know the amount you need to set aside to realize your financial goals, the most important step is to actually start investing. Consider your risk appetite before you decide which financial investments to choose. You may take the help of a financial advisor or mutual fund distributor to draw up a plan of investments for you to align with your goals and risk tolerance.
   
   This is the step where you will need the maximum determination and discipline, as it is easy to give way to temptation when consumerism is the name of the game. Hoardings and advertisements lure you at every step to buy. But you have to make a concerted effort to stick to the budget you had drawn up earlier.
   
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Stay invested through market highs or lows

Make sure that once you have started your investments in mutual funds, you are investing in a disciplined manner. Do not treat your savings and investments as something that you do after all other expenses are met. Factor in your investment in your expenses and live within those means. Mutual fund Systematic Investment Plan is a very convenient way of investing in mutual funds from your regular savings.

Historically, it has been seen that long term investments in instruments like Equity Mutual Fund may have the potential to provide long term returns. You can consult with your financial advisor to understand which investment is suitable for your investment needs and risk appetite.

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What should you do when there are unavoidable extra expenses at times?

We come back to the first sentence of the article, “Despite our best intentions we usually end up spending more than we planned for.” The festive season has started and will give way to the wedding season. Expenses will spiral out of your control. What will happen to the discipline we have been speaking about for so long then?

The following tips can help you stay disciplined in your endeavours to remain invested:

1. Try to take a step back and think if the celebration you have planned can be done in a more cost effective way. Celebrating a festival need not be a show of wealth and splurging on unnecessary items to feed your FOMO (Fear of missing out). Plan your festival budget beforehand, the way you planned for your monthly expenses and stick to your plan.


2. Make investments even in the festivities. For example, buying a Gold ETF can be an option during Dhanteras than splurging on diamond jewellery. In the end you are the best judge of what is the best way you can adopt to see to it that your investment plans do not go for a toss. Suggested reading: how to take cate of your financial health in the festive season?


3. If you are overspending in one month and not able to invest, swing back in the very next month and invest a little more to maintain the momentum.

As a conclusion, remember that the hardest battles are the ones that are not started. The moment you set your mind to it and follow through with your determination, your financial journey will become disciplined as well as stress free.

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