IS IT REALLY WORTH SAVING SMALL AMOUNTS PER MONTH?

 

IS IT REALLY WORTH SAVING SMALL AMOUNTS PER MONTH?

You may have heard the saying, "Little drops of the water make the mighty ocean". Well, this quote is suitable in different situations, and your savings are one of them. It's a no-brainer that we Indians have always been good savers. But with the changing times, our saving nature is also shifting. We are moving from good savers to smart investors, and saving is a vital part of the journey.

Saving money is the essential aspect of building wealth & stress-free financial future. Different driving factors have led Gen-X & Millennials to become more informative about their savings & investments. Indian youth is aiming for early retirement and financial independence in the coming years via smart investing. But too much information is passing around, raising more confusion than clarity!

Coming from middle-class background, the question of "how much money is enough to start saving or investing?" is the confusion most millennials are dealing with in their initial earning years.

Well, there are two ways to answer this question.

• First is with pure mathematics, data & facts; and
• The second is psychological.

In this article, we will discuss both.

 The Figurative Aspect (numbers):

Firstly, to be clear, there is no such thing as enough money for savings. To save, by definition, means putting aside something from your income. The amount of income or savings usually depends on the individual. So even if you save say Rs.2,000 per month from your salary, it will count and help you create wealth in future. Small savings may not seem like enough initially, but over time, they compound efficiently and contribute to growing your wealth, sometimes huge and sometimes small depending on the time given. In simple words, to save some is better than to save none!

Let us assume you are 25 years old, & your future saving scenario can be anyone from these two cases:

1. You start investing small amounts in SIP, say 2,000 per month at 25, and you grow your SIP yearly by 10%.
2. You don't invest a small amount and begin your SIP at 40. Where you are investing Rs. 20,000 monthly, and you grow this SIP yearly by 10%.

So, If you expect the returns to be at 15%, At the age of 60, you will have the following corpus:

 

Scenario	Case I	Case II
Age	25	40
Monthly Inv.	2000 (10%)	20000 (10%)
Term	35	20
Total Investment	₹ 65,04,585	₹ 1,37,46,000
Corpus	₹ 5,44,45,461	₹ 4,99,46,362
Wealth	8.37 times	3.63 times

 

As you can see, in case I, when you start at 25 with an amount as small as 2000 rupees and grow it annually by only 10%, your total investment comes to around ₹65 lakhs, but your corpus grows 8.37 times, a total of 5.44 Crore!

On the contrary, if you start investing late, say around your 40s, even with a total investment of 1.37 Cr., your corpus only grows 3.63 times, giving you a total of 4.99 crores. Now, this amount may look massive and appropriate, but if we consider case-1, it is definitely low.

In a nutshell, if you start an early SIP with a small sum and increase these deposits gradually in a disciplined manner every year, you will wind up investing less and building great wealth over time with the power of compounding. The mantra, therefore, simple, start as early as possible, even if small, but grow it regularly and let it grow bigger over time. Be patient a let the power of compounding do its magic.

So, if you also want to plan your wealth similarly by SIPs, you can refer to these easily accessible SIP calculators available on NJ Wealth Website.

 

The Psychological Aspect :

 Aside from these figurative benefits, there are also some psychological benefits of investing in small amounts.

 Helps to develop a habit of savings :

So, if you start investing small amounts from your earnings right from the beginning, you are forcing yourself to take that chunk of money from your monthly income and invest it somewhere. In this process, you develop the habit of saving money regularly, which is not easy to adapt when the world provides you with many distractions. Many people earn well and have a decent surplus, but they are unable to invest regularly because they don't have the saving habit! They have never done it before. And now suddenly they have to, so obviously they face difficulties.

 Can act as an emergency fund /kitty for spending :

Saving small instead of waiting for the 'right time' will help you save some money for emergencies. You can avoid many difficulties and life barriers by setting aside money with discipline. You can also plan for things like home appliances, gadgets, car upgrades, etc in advance with these small savings so that they don't pinch you hard at one go.

To sum up, the sooner you start, the better it is, regardless of the amount. It's never too early to start saving for the long-term. Procrastinating savings when you have enough never really works and you will never have enough till the habit of procrastinating is broken.

This article is an extract of our article published in August 2022 Digital newsletter