How to finally start saving money and get rich this year

My idea of money management so far has been shoving spare change into a delightful beer barrel-shaped piggy bank, and convincing myself not to click checkout on another 3 shades of red lipstick. It took 9 years of being gainfully employed and a terrible payout from the PPF of a 6-year long job for me to realise that I hadn’t really been saving money.

Unless I curtailed expenses and actively invested, all I’d have to show at the end of my career was a dwindling bank account, way too many post-its and possibly, Carpal tunnel syndrome. So I began to read about FDs, SIPs, LICs, OMGs and WTFs.

I found that saving money isn’t just about designating a percent of your monthly paycheque towards a recurring deposit. At least not according to Binoli Dodhiwala — co-founder and CEO financial firm, The Money Managers.

So, get out your checkbook, start cutting those Sodexo coupons and make friends with Google bhaiya as you try and learn the meaning of terms like ‘Emergency Corpus’ and ‘Liquid Mutual Fund.’

First we had the seven heavenly virtues, then considerably more fun seven deadly sins, and now, the crowning glory of the triumvirate — seven expert-suggested tips for saving money this year.

1.Treat your investments like EMIs
“Put your savings before your expenses — treat your investments also as an EMI (Equated Monthly Instalments). When you have an EMI, you service the EMI no matter what, so get your savings in SIP (Systematic Investment Plan) mode as well, which means that as soon you get your salary/ income, first work on your investments, then your expenses,” says Dodhiwala.

If you’re wondering how to begin investing when you can barely meet expenses, remind yourself that all the money you’re saving will make its way back to you. Eventually. And start small.

2. Maintain an Emergency Corpus
Dodhiwala cautions, “Maintain an emergency corpus in a liquid mutual fund – because emergencies can come at any time, and if you don’t have money set aside, you’ll have to break other long-term plans and incur losses.

“Ideally, 3-6 months of a person’s salary can be kept aside, and invested into products that aren’t subject to market risks, and products where there no Lock-in, i.e no charge on removing the money.

“I can have a one year FD but if I have to remove it next month, they’ll penalise me whereas if you invest in a liquid mutual fund (assets invested are not tied up for a long time as liquid funds do not have a lock-in period.) you can get a pay out of Rs 50,000 rupees in less than one minute.”

3. Map every investment to a goal
Think of it as the virtual version of putting your money in different envelopes for different things.

Says Dodhiwala, “If you’re saving 100 rupees, designate how much goes for what — like 20 rupees for a retirement fund, 20 rupees for emergency corpus, 20 rupees for wealth creation (used for holidays etc). So you map each and every investment to a goal, which helps you prioritise your goals and ensures you’re putting something into each goal. Which means if you’re breaking an investment, you know exactly what you’re compromising on.”

4. Take a term life insurance policy
Generally in India, we treat insurance as a tax saving vehicle but Dodhiwala believes tax should not be a consideration because insurance is needed to protect your family.

She advises that the earning member should buy a term life insurance cover at an early age. An early age, before the ravages of ageing get to you and you fall pray to lifestyle illnesses, because the younger you are, it’s likely you’ll get a huge cover for a minuscule premium.

She estimates that a healthy 35 year-old could pay Rs 8,000 and get a cover of Rs 50-60 lakhs.

5. Diversify your investments
A fool and his money are soon parted, so ensure your investments are spread across a variety of asset (revenue-generating product) classes.

“You should have a little bit of equity, a little real estate, a little bit of fixed income, a little bit of gold — every year, the best-performing asset classes changes, so if I put all my money in equity, and the markets fall at the time I need money, I may not have adequate corpus to meet my requirement at that time . So it’s best to invest it across assets classes and geographies (within, and outside India)”, explains Dodhiwala.

6. Build your investments to be your back-up earning member
After a few years, your investments should start earning as much as your regular income, which becomes a healthy back-up plan if you’re ever planning to take a sabbatical.

7. Look for avenues for tax-saving
Saving isn’t just not spending — it’s also, let’s be honest, about finding smart, legal ways of being exempted from payments. Under Section 80C of the income tax , you can save up to Rs 1,50,000. Dodhiwala recommends routing an SIP into ELSS (Equity linked savings scheme )and mapping it towards any long-term goals (like a retirement goal).

For instance, a mutual fund product which invests in the stock market with a 3-year lock-in — “for somebody starting young, you can take higher risks since you have an entire working life ahead. Secondly, the lock-in is the lowest compared to all the other tax-saving investments in the country,” says Dodhiwala.

If you understood everything in this last point, then you have learnt well, young Padawan.

Go forth, and conquer.