Why most investors struggle to save money every month & how to fix it?

POSTED BY manish ON November 22, 2015 COMMENTS (112)

Recently, I came across one interesting short story on quora, which I found interesting and worth sharing with all the readers. This story will help you understand why you are not able to save enough money by the end of the month. You will get to know why your hard earned money is spent into useless things and you don’t have enough control on it.

Lady: Do you smoke?
Guy: Yes I do.
Lady: How many packs a day?
Guy: 3 packs.
Lady: How much per pack?
Guy: $10.00 per pack.
Lady: And how long have you been smoking?
Guy: 15 years
Lady: So 1 pack is $10.00 and you have been smoking 3 packs a day which puts your spending per month at $900. In 1 year, it would have been $10,800. Correct?
Guy: Correct.
Lady: If 1 year you spend $10,800, not accounting for inflation, the past 15 years puts your spending total at $162,000. Correct?
Guy: Correct.
Lady: Do you know if you hadn’t smoke, that money could have been put in a step-up interest savings account and after accounting for compound interest for the past 15 years, you could have by now bought a Ferrari?
Guy: Oh. Do you smoke?
Lady: No.
Guy: Then where’s your fucking Ferrari?

The story above sounds funny. The lady did not smoke, so that money must have got accumulated and she should have owned a Ferrari as per the logic. But that did not happen in reality.

Why?

The answer is – “Ferrari was never on her mind”

Her money was not put on the purpose of buying the Ferrari someday. She did not spend the money on cigarette but then that same money kept getting consumed on some other things which came in small chunks.

Life kept throwing small and tempting desires and she fell for it without realizing about it. And finally at the end, did neither have the money, nor the Ferrari.

You are the biggest enemy of your financial life

If you leave your money in the saving bank account without giving it a strong purpose. Then the lifestyle today is such that no amount of money is enough to meet your short term desires.

Life will throw all kind of requirements and if your money is available right in front of you, you will keep trying to handle those requirements without much analysis.

Justifying the expenses becomes very easy when you have the money sitting in front of you, waiting to spend. Investors are generally over-confident about their saving abilities and there is tons of research to prove that.

Take out the manual mode of investing from your life

Here is the rule – “Lesser the money available in front of your eyes, higher the chances that you will restrict your useless spending.”.

You need to take out the manual mode of saving money out of your life and take the help of automation. There has to be some way, where some part of your salary leaves your bank account and gets invested on its own. Because the more you leave the decision making to yourself, it’s not going to happen on consistent basis. Humans are designed to take the path of least resistance. Machines don’t make mistakes.

Let some automated way to save your money, and it will happen consistently, without fail. No one will

The best example of this is your EPF

Your employer deducts a part of your salary and that gets accumulated over months and years. That small deduction becomes a very big amount, if you leave it just like that and don’t disturb it. EPF does not earn a very high interest, but still it accumulates a decent amount.

Now just imagine this, Your employer tells you that they will not deduct that amount and you have to save money each month. It’s fully in your control now.

You should feel great that you have EPF and some form of automatic saving. If you were given the freedom to choose the EPF, it would be a bad thing. Because most investors won’t have chosen it. Here is a similar study from US, where employees were asked to enroll for 401K program (similar to EPF in India) . However, the catch was that they had a choice to not opt.

When the enrollment was made a compulsory thing as a default choice, with an option to opt out if one wants, the enrollments more than doubled. Why did it happen? Because enrollment happened automatic !

power of default saving

So coming back to EPF example, Will you save money equal to your EPF each month, if it were not taken out of your salary automatically?

Are you really confident that you have the determination and commitment and control over yourself to save that money month after month, year after year without fail?

Are you understanding what I am trying to tell you here? The point is, YOU are your own enemy when it comes to saving. Take your manual judgment and your decision making out of saving each month. Let it happen on its own, automatic.

My personal Experience

Around 6 months back, my wife wanted to start a recurring deposit.

She started a recurring deposit of Rs 15,000 per month for 1 yr period. After 8 months, when she checked the bank accounts, she could see the 1.2 lacs in the deposit account. Suddenly she felt – “How this money did came there?”.

The point is – it was automatic saving. It all happened in the background and didn’t give her any scope of judging the decision again and again. She always saw her salary minus 15k in her bank account.

All her expenses, shoppings, indulges, bills had to happen out of the money which she saw in her account and it happened. The expenses fit themselves in the amount available. It’s the nature of money, and I will share more about it in sometime.

Don’t trust yourself for saving money

Don’t trust yourself, when it comes to systematic saving. Your intelligence can be your big enemy. If you decided that each month you will carefully set aside some part of your money yourself, after all the expenses are done, then it’s going to be a tough time for you.

Do this simple exercise

Take a sheet of paper (or open an excel sheet). One the left side write down your income each month and one the right side, write down all the expenses per month.

Now subtract your expenses out of your income, and you get your monthly surplus. So each month after all your expenses are made, you should be saving that surplus amount. Correct ?

Is that happening? Did I hear NO

do you really save enough

Why does it happen? Why are you not able to save the money equivalent to your surplus each month?

MONEY is like flowing WATER

Have you ever wondered why you are not able to save enough money, even though your salary has kept increasing in last many years. Your expenses keep on matching with your expenses.

Even if you are saving some money, are you reaching your full potential? I guess NO

Why?

It’s because money is like flowing water. If you do not give it some direction, then it will find out its own direction.

When you do not automate saving money, then all the money will get consumed into “something”. Life will keep throwing various kind of expenses, desires and requirements, and if money is easily available in your bank account, then trust me, you will always come up with strong reasons why you can’t avoid those expenses.

money is like water

Some of our clients get shocked when they fill up the datasheet we send them. The most common complain is – “I am not saving anywhere close to what my income – expenses is showing up”, where is it all going?

The answer is – “Its getting consumed into things which looks important and urgent in short term, but in reality they are not”

My friend real life case

Few months back, I was talking to one of my close friend. He told me how he is not able to save anything by the end of the month. He was very confident that its very tough for him to save anything. After all, if he had any surplus, why it’s not there at the end of the month?

I asked him a simple question – “If his income increases by Rs 1,000 per month. Will it remain in the bank account after all his expenses?”

This one single question was a game changer.

He told me that he is very sure that even if his income increases by Rs 1,000 per month. His life would be same, it will surely get consumed somewhere.

I told him – “In that case, if your income drops by Rs 1,000, your situation will be same”

So why not set aside that Rs 1,000 in the starting of the month itself, and see less month in the bank account. Trust me, your financial life will figure out something, it will adjust. It will surely try to fit it.

And that’s exactly what happened. I helped him in starting his first SIP of Rs 5,000 per month.

Just few days back, the first auto debit happened. I can almost guarantee that by the end of the year, these Rs 60,000 which was getting consumed somewhere, will “automatically” get saved in mutual funds.

So what is the worst case?

Ok fine, your financial life is really in bad shape & you can’t save even a penny. Let’s say, you show some courage and start a recurring deposit of Rs 1,000 per month, even though you know you will need that 1k later.

What is the worst case?

You would need that money back in some time again? Right ?

Solution – It that happens, then break the Recurring deposit and use the money …

Or you could start an SIP of Rs 1,000 and incase you needed it, you can always redeem it and take back your money.

But you know what, you will not take it back. You will not redeem it. Because like most of the investors, you are lazy when it comes to money. Its easier to adjust rather than take that pain to go to the bank and sign that paper for redemption.

We humans take the path of least resistance. You don’t know how amazing human laziness can be for your financial life. Ask those who bought IT stocks and never cared to think about what to do with it. Its only their laziness, which has made them millionaires, because they still hold the stocks

Most of the people are living with this myth that they will not be able to save even a penny by the end of the month. It’s not true.For 95% investors it’s a self created illusion.

They have just not tried enough in a right manner. Let me share with you this in detail

Income – Expenses = Saving

For most of the investors, the default equation each month is “Income – Expenses = Saving” . This equation looks very natural and logical. First you take care of expenses because they need to be handled NOW, and then if something if left, you will save it. This is how any normal person will think like. But thats the root of the problem.

If you are not able to save enough money each month, I am ready to bet that this is the equation which is destroying your financial life. Let me guess how it looks like ..

Each month, you must be earning some money, then you take care of various expenses, some fixed and some random surprises and if you get lucky, you must be having some surplus money in bank account each month.

But wait, The money is still in your bank account. It’s still “easily available”. You decide that you will do something about it very soon. You decide that once it becomes a big amount, you will create a FD out of it.

Next month, again you have some surplus and more money got accumulated in your saving bank account. Suddenly in the third month, your spouse tells you that she wants to upgrade the washing machine. After all, anyways its Diwali time and she deserves it.

And why not? After all, you have the money available in your bank account. What’s the problem then?

Your timing is also perfect, the thought of upgrading the washing machine has come up just when Flipkart sale is round the corner. I am sure it’s a coincidence.

How expenses take shape

No , it’s no coincidence.

The point is – the money found its own direction and that’s because you didn’t gave it any direction beforehand.

For a moment, think what would have happened if the additional surplus was not available easily. It was there in a recurring account or was into SIP in some mutual fund or ELSS (locked for 3 yrs). It’s hard to imagine that you would have said – “Lets stop our RD or SIP in mutual funds and upgrade the Washing Machine”.

Can you see how everything changed in both the situation?

Or imagine you would had created an FD out of that money before hand for paying the school fees for your kid at the of the year. Would you break your kids related FD to upgrade the washing machine? Generally not.

I am not against the expenses

Trust me, In no way, I am judging the urgency of your needs or desires. They might be genuine and very much reasonable. Please go and upgrade your washing machine, if it’s really needed. I am not even against taking a loan for that, but just assure that your requirement is genuine and not a made up one.

Just 1 yr back, I bought a sports cycle out of impulse and you should have met me just before I purchased it. I would have convinced you that I need the cycle more than I need oxygen. Plus, I had the money with me at that time. Today I am not using it enough to justify my buying decision.

Why most investors struggle to save money every month & how to fix it?

I can tell you – this false belief of “I need it so much” and the availability of money in your bank account is such a deadly combination.

So what do you do ?

Change the equation to “Income – Saving = Expenses”

Few changes in life give a new direction to life. Everything changes.

Trust me, this is one such change if you really understand it well. If you decide to change your saving equation to “Income – Saving = Expenses”, it can drastically impact your financial life in positive way.

Here is now you implement it.

  1. Find out what is the minimum amount you think can save each month. Is it 10%, 20% or 30%. Take a lower amount in the start, else it won’t be sustainable in long run.
  2. If your salary arrives in your saving bank account on date X, then, setup a recurring deposit or a SIP in mutual funds on date X+2 or X+3
  3. Trust automation, it will do wonders for you
  4. And in worst case, if you really need the money, you can redeem it back and use it or stop the RD or SIP.

If you can take this first step, then you have already won the big part of battle. Other things like great returns, advice, controlling risk, finding best financial product and all that will be taken care later. But the first step it this – changing the equation

If you can spare 20 min, you should watch this amazing video by Shlomo Benartzi, on the topic of Saving for tomorrow, tomorrow. You will understand the impact of automatic saving in a better way in this video

And you don’t have to compromise

Don’t confuse automatic saving with compromising on your expenses and fun. We are not asking to stop eating out or cut on your entertainment in life. A lot of investors live in this myth that financial planning is all about compromising on your desires and spendings. No its not.

It’s all about giving a meaningful structure to your financial life and exploring various possibilities to make your financial life awesome. That all.

I would love to hear what you think about this idea of changing the equation. Do you think that this single thing is really a very important parameter to live a good financial life? Please share your own saving habit in comments section

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112 replies on this article “Why most investors struggle to save money every month & how to fix it?”

  1. kavita Anekar says:

    As usual very helpful article.

  2. Gaurang says:

    Always enjoy reading jagoinvestor articles because you talk of real life issues of regular people. The language is not fancy and your content is better for it. You talk like a friend would. In simple terms bit about very relevant topics and giving good advice. Thanks foṛ that

    1. Thanks for sharing that Gaurang 🙂 .. please share the content to your friends and all so that more and more people can read it

  3. Sandeep says:

    Very interesting and thoughtfully articulated article Manish.

    1. Jagoinvestor Admin says:

      Thanks for your comment Sandeep

  4. Rohan says:

    Very good article manish

    1. Thanks for your comment Rohan

  5. Jackson says:

    Good article Manish.

    1. Thanks for your comment Jackson

  6. rohit.agrawalla says:

    Found your article informative. Thanks for sharing.

    1. Thanks for your comment Rohit

  7. KoushikDas says:

    Very informative post from Mohit Chauhan sir. Sir, Do Jago investor allows guest posting? If yes, then I would like to contribute articles here. Thank You

    1. Yes you can contribute articles to Jagoinvestor ..

      Just make sure its a high quality content and something new to community. Send it to me on manish@jagoinvestor.com

  8. Avinash Sardesai says:

    Manish, as you have rightly pointed out, it is indeed a good and practical idea to get into passive or automated mode of investment, whether through SIP or RD.

    Even within SIP, it is a good idea to give a long term SIP in good equity funds or even ETF – say 3 years (or even perpetual) rather than 6 months once funds are finalised for investment. If the fund performance deteriorates, one can always stop the SIP.
    However it ensures that you keep on investing regularly, without bringing emotions in the investment process, something that behavioural finance recommends.

    1. Yes, I fully support that ! . It will help to save money in long run !

  9. SANJAY says:

    Hi manish,

    Good to know one more interesting lesson from you.
    One suggestion required from your side that where some body need to invest if he has some spare money in hand by looking today’s market scenario. either PPF, SIP or RD..

    1. SIP is the better choice. In case you are interested in that, let us know and my team can help you in setting up the SIP and doing all the things – https://www.jagoinvestor.com/start-sip

  10. Minu says:

    Hi Manish,
    As always great blog . Automation has done wonders for me .I am able to save about 55 % of my income due to Automation via SIPs in equity and debt funds / RDs .
    Believe me , It feels awesome after you see a hugh amount in your savings / investments at year end .

    1. Hey Minu

      Thanks for sharing your experience with all of us. It was a great learning.

      Manish

  11. swati says:

    Hello sir
    i am really glad to be part of this. rally appreciate you for aware people. it is a useful method no doubt.

    1. Thanks for your comment swati

  12. Rabiya says:

    very well written article with interesting points…although i am already doing some points that are mentioned, will try the income – saving’s formula.

    1. Glad to know that Rabiya ..

  13. Rajitha says:

    Hi Manish,

    Wonderful Article. Completed relating to it.

    I very pathetically managed my finances and almost 90% of my salary goes on loans (this happened also due to genuine reasons). I will clear of 1 credit card of mine this month with the bonus and I will be left with about 10K excess in hand. Do you suggest that I pay that excess 10K also into another CC and try to clear that faster or should I save that money. Pleas suggest.

  14. Sandip says:

    Very good post…!

    I tried this way by saving 5K in RD and today i saved almost 2.50 Lacs.

    1. Glad to know that !

  15. Ashish says:

    nice post

  16. Bunty says:

    This is a great article for folks finding it tough to save money. I have been following this strategy as well and I can say without a doubt that this works wonders. The first thing that I do when my salary gets credited is to move a certain % to a flexi-RD, per a budget. I make do with whatever else remains.

    A year ago I did not have any savings at all. I found myself put up against a heath emergency which had me borrowing money from friends and colleagues. The health insurance claim didn’t come through either. But come one year later, I have a substantial amount saved up and I feel I’m better prepared for unforeseen situations. I find myself more attuned to cutting costs wherever I can to save up more.

    This idea of automated savings has you adopting a more frugal lifestyle as well. It may seem a little odd when you start out but eventually you’ll find yourself getting more and more accustomed to it and that big number in your savings would definitely put your mind more at ease than any other material item ever could.

    1. True ! .. thanks for sharing your story and how this is working for you !

  17. RakeshKumar says:

    Dear Manish,

    I just finished all my car/home loans 1 year ago . I have rebuilt my contigency fund for 1 year. Now i want to invest upto 50% of my salary of 1 lac, for my family. This is all i have. Please advise what is the best way to start forward again :). I am 41 years old. 🙂 and looking forward to your ideas

    Thanks
    Rakesh

    1. Hi Rakesh

      I suggest you should invest in equity mutual funds with a proper plan for your financial goals. We can help you in choosing the right funds for your goals . Do explore our financial planning once. Its affordable and will give you a good roadmap.

      https://www.jagoinvestor.com/services/financial-planning

      Manish

  18. Rahul says:

    Hi Manish,

    Great article!

    I want to which are the best automated saving options to save for short tem goals e.g. a financial target in 06 months.

    Thanks in advance.

  19. Javed says:

    Thanks, nice one 🙂

  20. SriharshaKaragodu says:

    Hi Manish,
    Its a great article indeed. I too realised that equation should be income-savings=Expenses recently and have started moving part of my salary to another savings account which is not used.
    However I know it is not great idea. So started RD.

    I really liked the idea of automating the savings I will try to implement it in coming months.

    1. Glad to know that SriharshaKaragodu ..

  21. Mukesh Vijayvergia says:

    Nice article Manish. May be you consider another article in continuation o this which gives individuals investment options for their savings accordinging to their age, income and future expenses.

    1. That will be financial planning for each person 🙂 , Not possible to do on comments section !

  22. jignesh says:

    Excellent topic

  23. Srinivasa S Neralla says:

    I am an ardent follower of your articles. I serve in a PSU and make a decent income of Rs 1.25 lakh p.m of take home salary. I felt the necessity of saving more after my daughter joined a professional course in Dentistry. I do RD of Rs 20,000 p.m and helps in preparing for the annual educational payments to the tune of Rs 6 lakhs per year. I also take an interest free advance of my salary up to another one lakh which is prevalent in our company. I am examining the option of increasing the VPF so that I can manage the educational expenses without a loan.

    1. Hi Srinivasa S Neralla

      Thanks for your sharing your valuable comment on this topic. Please keep sharing your views in future also

      Manish

  24. Akshay says:

    Wonderful article Manish. The video is also excellent!

    I had started saving 15% of my take home salary in RDs 1.5 year back and now it’s so much fun to see effortless money in excess of 60000 or 100000 flowing into the account to take care of planned spendings.

    To share just another example how money found its own route when I did not plan intentionally as an experiment:
    Went to Bangkok with a credit card with no fixed plan about purchases in mind. It was just a 5 day trip. Purchased so many things, ate and drank as if there is eternal supply. And when I saw my credit card bill I had blown up Rs 53000!! Had a good learning and understood the importance of planning my expenses and savings.

    Hats off to you Manish for another brilliant article on behavioural finance. I enjoyed reading it.

    1. Hey Akshay

      Thanks for sharing your experience with all of us. It was a great learning.

      Manish

  25. BalajiReddy says:

    Manish,
    Ur jagoinvestor book helping me a lot in personal finance. Thank you for the insightful article 🙂

    1. Glad to know that BalajiReddy ..

  26. Vishesh says:

    Hi Manish,
    I have been reading your articles since over an year or maybe more now, and this one is one of the best ones, more so because I can relate to this. I have made a step towards automatic saving by opting for the VPF route. When I started my career 3 years back at the age of 21, I did not save much and most of my salary would go towards essentials like rent, groceries, etc. I however from the 2nd month of my employment asked my employer to make an VPF contribution of 12%. This didn’t make much of a difference to my net take home, however when I draw a graph of what this “small extra” automatic saving makes, I see a big difference due to the compounding effects which will show up in the later years.
    I would like to thank you and Nandish for this wonderful website, as Yahoo employees you could have been making a lot of money and secured your own financial future, however you left your jobs and took this route to promote financial literacy in India which personally I feel is a step which many others can and should follow. Please let me know if I can be of any help in this journey of yours.
    Thanks,
    Vishesh

    1. Hi Vishesh

      Thanks for sharing your story of making VPF and gaining from it. I am sure a lot of other investors will get inspired by real life stories like this.

      Manish

  27. Srinivas says:

    Dear Manishji,

    Very nice article.

    1. Thanks for your comment Srinivas

  28. Suresh says:

    Hi Manish, Good day! I have learnt this changing formula from one of your financial planning book. Change has been happening in my financial life and I am trying to convey this formula to my friends and relatives. I am lucky I am following a leader who gives always worth and wonderful tips to us 🙂 Keep up your good work!

    – Suresh

    1. Glad to know that Suresh ..

  29. mytime545 says:

    Hello,

    After reading this article i am totally convinced that i should start investment now,
    I am planning to invest in mutual fund & that too with SIP.

    I am planning to invest 5000/month(SIP) for 5 years: which Mutual Fund should i buy considering moderate risk.

    Please suggest me the category & name of the mutual fund as per your expertise & experience.

    1. You can look at ICICI Pru balanced Advantage fund – G . Its a good plan .

      I am not sure how you are planning to invest? Do you want my team mate to help you on this and get you started ?

      Manish

      1. Rohit says:

        I am invested in HDFC Equity + Top 200 for 3 years in SIP. Its performance has been downgraded by most research companies. I have a horizon of 30 years. do I ever need to worry or continue sipping.

        thanks

        1. Aman says:

          You should stop investing with HDFC. All hdfc funds are too big to manage. Big size funds are not successfully able to deploy their incremental inflow. Use Value Research and CRISIL Star rating. Avoid any fund below 4 star.
          U may consider MOST Focused Multicap 35 and Mirae Asset Emerging bluechip fund considering your long term investment horizon

        2. You need to check your funds . If they are not doing well, you can switch to other funds easily .

    2. Hi Darshan

      I have emailed you

  30. rajushinde says:

    Dear Manishji,

    Very nice article.

    Thank you.

    1. Thanks for your comment rajushinde

  31. Nitin says:

    Thanks Manish for this article. Indeed a good one as before!

    Manish, why Jagoinvestor FORUM is read-only now? If we want to ask some question or want to take advice then if there any alternative option?

    1. Hi Nitin

      At the moment, we are not able to handle the amount of questions and comments which we are getting, so for now forum is read only. If you have any specific query, please ask it in some article comments section which is relevant to your query

  32. Vijay says:

    Excellent. I have been following “income – saving = expense” method since last few years. Works wonder.

    1. Glad to know that Vijay ..

  33. George says:

    Nicely written article Manish.

    My adviser also said something that made me sit up. Every month you pay your telephone bills/electricity bills/society charges;while paying that amount you dont consider it as something to be guilty about. if you give a standing instruction to the bank, these days the telephone bills gets auto debited.

    Similarly if every month an SIP takes an amount from your bank account you wouldnt feel the “pain” of paying money. But if you were to try the Do it yourself approach you would defer making that investment, thinking since its not mandatory let me think before investing!.

    1. Its great to know that you are following this and its working for you. Pay your advisor well 🙂

  34. SantoshJunnarkar says:

    As usual an excellent artical Manish ! Really appreciate your effort to spread awareness.

    1. Glad to know that SantoshJunnarkar ..

  35. Anjan says:

    I am not really a materialistic person, hence I spend extremely little on material stuffs like gadgets and appliances. But I still have a hard time saving money as I love to travel too much and squander away all the money by travelling to exotic and remote inaccessible locations all over India. I can never be convinced that travelling is a waste of money because of the sheer experience and thrill it provides.

    I have tried going the forced saving route of automatic RDs and fixed deposits but when its time to travel again, I see that I have insufficient funds in my savings and I straight away break an FD or RD to get the money. This is not helping me build any corpus. What is the solution for people like us, Manish?

    1. “Travelling is a waste of money” – Definately its not 🙂 .

      Travelling is one of the experinences which should be experienced by many, but sadly in our country, most of the people all life never travel enough to understand how beautiful it is.

      So coming to the question, I think if you really love this, spend a good amount of money on this. But when it starts giving you trouble then you need to cut out on it. I mean to say that if you are fully exhausting everything for that and its not leaving you with any money for future, then you need to control that.

      Truly speaking there cant be a formula for that, no matter what we do, if you cant control yourself – you cant do much.

      Hence the only solution I can think of is that you invest in those products which have inbuild lockin . Like ELSS mutual funds (3 yrs lockin) , PPF and bonds. What do you think:)

      Manish

  36. dev says:

    HI, I am currently saving 50-60% of my earnings and target to get financially free by 2020 if my incomes stay the same as the last few years. I am into trading derivaties. Therefore incomes are uncertain. However, the rewards are big when positions are sqaured in our favor. I advise people around to save max today and take the pain for 1st 5-7 years of a career and you will see COMPOUNDING working in ur favor like a MAGIC.

    1. Anjan says:

      Considering, 2020 is just about 4 years away and you’re already so close to financial freedom, may I ask how long have your been working? Most of us would like to be financially free one day but certainly not by working our ass off till 60.

      1. dev says:

        HI Anjan, I am 33 year old and earning from last 10 years. My Networth was ZERO till 2011, It was only from 2012 that I decided to work up on my finances. My work(trading derivaties) is of uncertain nature but is highly rewarding if positions work in favor.
        A few points to help you follow my process. a) I decided to live in a small house (suffcient for my family of 3); therefore LESS of HOME loan and more of savings into growth assets like equity;
        b) I upgrade gadgets only when its needed and not when the company launches something new…so extra savings;
        c) I love to buy 2nd hand stuff which has been hardly used (like recently I bought a HONDA deo only used 4 months) which saves a lot of money and u get bargains;
        d) I work on weekeneds advising a few people in my area of interest-personal finance which I started in 2005, It took 10 years to earn from it something substantial. But the monthly oncome from it today pays for my home loan.
        So, I know you may finnd (points above) some of it not suiting your nature but find out your way to save max possible.

        1. Anjan says:

          Wait, you said you advise people on personal finance, your work is trading derivatives and your name is dev. Are you the admin of SI? If yes, then I gotta say I am a big fan of both this site and SI. I have amassed an incredible amount of knowledge on personal finance in the last 2 years thanks to sites like these. So yeah, very grateful and hope to keep on learning.

          Well if your net worth in 2011 was zero and you are looking for financial freedom by 2020, that’s just a time frame of 9 years. I cannot imagine anybody can achieve financial freedom that quickly but whatever you’re doing must be working miracles. Best of luck! I have a target to achieve the same by 45, that’s still 20 years to go but I’ll be happy if I get there. I don’t have any liabilities but I don’t exactly have a very high paying job either. Gotta to something about that I guess.

          1. dev says:

            Anjan,
            I dont know SI.
            Good that you are learning on Personal finance and working to improve your financials. I am working to get financiall free by 2020. I may not acheive it(may take 2 more years). Its perfectly fine. Trading derivatives is a high risk high reward game. So it worked in my favour for last 4 years. I dont know whether this would continue. If it continues, I will attain FF in 2020.

    2. Hey dev

      Thanks for sharing your experience with all of us. It was a great learning.

      Manish

  37. Renga says:

    Dear Manish, Great article, new thinking of how you can control the out of control spending habit.

    If possible can I ask you to add an option to share this article or mail it to friends.

    1. You can surely share it with your friends. You can see sharing icons and mailing icon on the extreme left ..

  38. N says:

    Is the cycle available or have you sold it?

    1. Using it now 🙂 .. Not interested in selling 😉

  39. Harpreet says:

    1 Tried that went for a week difficult due to timings bought my self a home gym and other room full of items

    2 already have 5 pairs

    3 Trying for that

    4 No why

    Problem is not able to spend on necessities /small things and waste on useless items

    1. dd says:

      Okay Harpreet I get ur point .
      If you spend on useless items let’s do this … For every amount you spend on useless stuff check what was the effort needed to earn it. If your mehnat wasnt worth buying useless stuff then next time don’t buy…… And ur fine ….. At times we learn money by spending …. Just make a daily spending log somewhere and you shud be fine ….. If you spend 5% on random stuff its OK….. You ll learn to spend better . itna tention mat le bhai

      1. Harpreet says:

        I spend ob use less items for reliving stress and not from my salary like will take a walk to save rs 5 and give 500 in tips

        1. dd says:

          Not sure if I read it right ….. If you feel like tipping a lot then for the next one month make a commitment to not tip at all….. Tujhe koi office aane ka tip deta hain kya….. And still if you feel, tip the 5 rs you saved by walking …. Tips and charity shud come from money saved on expenses and not from savings …… I do that …..

    2. dd says:

      Else follow the article , move money into rd …. Diff to break and stop

    3. Glad to know that Harpreet ..

  40. Basavaraj says:

    Hi Manish,

    I agree with the article of changing equation. Thank you.

    Thanks and Regards,
    Basavaraj

    1. Glad to know that Basavaraj ..

  41. DeepakHonnalli says:

    I agree with your method. I have been doing SIPs for the past 3 years and I have to say that I have benefited quite a lot so far. I have no intention of breaking the SIPs.

    I used to struggle to save anything barring the mandatory EPF before getting into the SIP habit, but now, things are far better. After the compulsory saving, I can spend the rest of the money without any guilt. This is a sound advice and I hope many will be benefited out of it.

    Also, regarding impulse buying, I can narrate my recent experience. I had ordered a camera from one of the online vendors. I already have an older camera, but I was absolutely convinced that I need to buy a better one, and as luck would have it, there were good offers on the one I was looking for. I paid using my credit card, and once I got the package, I found that the camera was not present. After taking the issue up with the vendor, my payment was reversed promptly by the vendor. Now that my payment was back, this made me think. My approach was wrong. I thought that I will have to get a better camera for better photography. But, I realized that I needed to improve my skills first and then hunt for a better camera. I payed a fraction of the cost of the camera that I had ordered, and repaired my old camera. It is now working well, and I am honing my photography skills.

    One more thing I am thinking is – for some big ticket items, we can plan well in advance. We know approximately when there will be a good offer. We can plan a small online RD/SIP which will approximately match the budget we have in mind and break around that time and buy the item. That way, things can be easily managed.

    The RD/SIP idea can be used for school fees too I think.

    1. Thanks for sharing your experience Deepak. I am sure a lot of people will be able to relate to it in some way.

  42. bittoo says:

    Hi Manish.
    Once again a wonderful article.

    When i asked my husband to start a SIP. he told me “what will we do when we required that money.Eg , you are doing a SIP of rs.5000 per month like in HDFC Top200 (which gave negative return last year) and we need money on urgent basis. and you will told me that my money is in negative i can not stop it. Then….”

    Plz answer…

    1. manish says:

      divide the 5k in 5 parts of 1k each and invest in diff category of mutual funds, like for e.g. DSP micro cap, SBI pharma, HDFC top 200, icici pru export. So this wont let u in situation of negative return in all funds.

      Thanks.

      1. Jega says:

        In addition to that, If you are sure that you need money anytime within 2-3 years then always go for an bond fund which will never give you returns in -Ve. Go for equity only when you are sure that you dont need that money in long term

        1. Thanks for your comment Jega

    2. Its a different issue altogether.

      Markets will keep giving negative and positive returns in a short time frame. If not SIP, then atleast do a recurring deposit.

  43. Moneysaver says:

    Nice Post ,
    Totally Agreed I want add one more point towards this article

    Master the 30-day rule :- Person have to calculate there expense and Avoiding the unused buying is one of the most important rules of personal finance, and waiting 30 days to decide on a purchase is an excellent way to implement that rule.Quite often, after a month has passed, you’ll find that the urge to buy has passed as well, and you’ll have saved yourself some money simply by waiting. If you’re on the fence about a purchase anyway, waiting a while can give you a better perspective on whether it’s truly worth the money.

    1. Great perspective . I am sure this will help a lot in saving money and not going for useless spending !

  44. Shravan says:

    Hi Manish,

    Once again Great article..I totally agree with your points.
    I think one should also remember of rainy day and inflation that also motivates us to save..

    Thanks,
    Shravan

    1. Thanks for your comment Shravan

  45. Mahesh says:

    Hi Manish,
    Simple language and awesome Concept.

    1. Thanks for your comment Mahesh

  46. Hitesh says:

    Hi Manish,
    Great article as usual.
    Taking the first step is the hardest.
    I have been following your blog since i started my job when i was single.
    I started with 3 SIP of 1000 rs each when i started to work. It was a difficult concept at that time to make yourself amenable to the fact that you get 3000 less in your salary and will be automatically deducted.
    However, 2 years down the line, i realised the importance of Expense= Income – Savings and I started to increase my SIPs.
    Today, I am saving 30% of my salary by automatic SIPs RDs etc which get deducted within the first few days of my salary coming in.
    This single action has resulted in savings for me and set the tone for my financial life and I give all of the credit to you.
    I had one question: My entire savings are liquid: MFs, RDs, FDs according to a preset allocation percentage. But everyone I know or read about mainly focus on Real estate which I find extremely risky and prone to fraud and also requires a huge loan ( I dont want to live to pay the builders). Do you think I am making a mistake by not investing in Real estate.
    Thanks,
    Hitesh

    1. Vikas says:

      No you are not.
      MF & SIP will easily outrun the risk & volatility of real-estate in the long run.

    2. Hey Hitesh

      Thanks for sharing your experience with all of us. It was a great learning.

      Manish

  47. Harpreet says:

    Great article on saving how ever I am struggling with spending as I am saving nearly 95-100 of my salary and living with my parents (Note I use my other income freelance to finance my small expenses ) but am unable to spend any of my money on myself unless I am depressed in that case I spend on things I don’t need/use instead of I need .

    So an article on spending will be appreciated.

    1. dd says:

      Harpreet,
      Ways to spend.
      1) Get a reasonable 3 month gym membership and workout.
      2) else buy a good pair of running shoes under 3k and run for 20 mins daily.
      3) invest on self , learn how to groom with minimal spending
      4) if you still feel bad abt not spending , pay my bills!!!!

      1. Joel says:

        ” if you still feel bad abt not spending , pay my bills!!!! ” and mine too

    2. Anjan says:

      LOL unique problem. This won’t be an easy problem to address my friend. If all the temptations around you cannot tempt you to spend anything, then you truly are on your way to great riches and early retirement.

      I bet you are not married yet. Beware! Things can change very quickly after marriage and then you’ll be struggling to keep a tab on where your money is going even though you aren’t spending a dime on yourself.

      1. Harpreet says:

        u are right @Anjan yes are right not married yet

        1. dd says:

          Harpreet.
          Boring advice is if you are arnd 25-28 , start a recurring deposit of an amount that you wint miss at all which you will renew yearly for the next 15 yrs and you Dont touch that money. Dont buy cars or bikes or home loan rather travel the world and gain experiences of a lifetime. You ll have money for all the right needs and pleasures. Learn music or cooking or any art if it appeals to you else ignore.
          Still if you have money then on a lighter note pay mine and Joel’s bills 🙂

          1. Harpreet says:

            Thanks for the advice

          2. Anjan says:

            This is what I always tell people. If you have money but don’t know where to spend it, just travel. This is the best way to spend your money that gives you enormous satisfaction, relief from stress, new ideas, thrill, memories and what not. I have even gained many new contacts thanks to extensive travelling.

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