Ask Morningstar: Why does money slip through my fingers?

Apr 05, 2022

I barely have any savings after earning for little over four years. I am unable to save. I can’t keep track of my money. It comes and goes. I don’t spend on anything extravagant - just food, books and sometimes clothes. I have two SIPs going on where I invest 9% of my earnings.

You are not alone in feeling this way. In fact, money slips through all our fingers if we are not aware.

Let me share some suggestions that I hope will get you on track. I will do so by breaking it up into three parts, based on your question.

  • What you say: I barely have any savings after earning for little over four years.
  • Solution: Be patient. Focus on investing diligently; every single month without fail.

Do not allow yourself to get disheartened. Everything takes time. As is commonly said, making the first million takes the maximum time. That is because for your money to compound, it needs the raw material (money invested) and patience (time for it to compound). As the corpus accumulates, the momentum picks up as it feeds on itself.

This is the reason you should increase your investments because it will only enhance the compounding effect. The more you invest now, the more it will compound.

Money advice to my 20-year old self

  • What you say: I am unable to save. I can’t keep track of my money. It comes and goes.
  • Solution: By examining your cash outflows, you can identify patterns in your spending and zero in on your problem spots.

It is not that you are unable to save. The issue is that you are unable to track your spending. And you can, by making note of where your money goes.

Now I do understand that writing down every transaction may be overwhelming, not to mention tedious. So let’s make it easier. At the end of every day, fill in the amount spent in three broad categories: Travel, Food, Other. This is much more doable. But you must do this. Just try it out for three months at least.

Being aware is the first step. Once you see where the money is going, you can tweak your spending accordingly.

3 questions to answer to kickstart your savings

  • What you say: I have two SIPs going on, but I invest just 9% of my earnings.
  • Solution: Every year, make it a habit to increase the allocation to investments.

Investing just 9% of your income is low, specially given your circumstances. You don’t seem to be in debt. You don’t seem to have any dependents. You are in a sweet spot. You have started investing at a young age, which is excellent. Now it is up to you to build on that. I would recommend that you invest at least 25% of your income.

Let me present you with some figures.

Let’s say you earn a return of 10% per annum over 23 years. If you invest ₹10,000 per month, you will accumulate approximately ₹1 crore. Increase it to ₹15,000 per month or ₹20,000 per month and you get a little over ₹1.5 crore and ₹2 crore, respectively.

An individual who cannot afford ₹20,000 a month, can start with ₹10,000, the following year can increase it to ₹15,000 and the year after, to ₹20,000.

The point is, doesn't matter how small the amount. Just ensure that you start, and once you do, keep increasing the SIP amounts.

I have no idea which funds you are investing in, so I am going to assume that they are equity funds. But you need to invest depending on your goals. So if you need the money sometime soon, then besides the SIPs, you could consider opening a recurring bank deposit. Here, just like an SIP, a fixed amount from your savings account is credited into a fixed deposit.

In conclusion, what you can instantly do is broadly monitor your spending and increase your investments.

The best money advice from our mothers

Registered readers can post their queries by accessing the Ask Morningstar tab. Our team will answer SELECT queries relating to mutual funds, portfolio planning and personal finance. While we provide broad guidelines, we suggest you consult a financial adviser before making investment decisions.


Articles authored by LARISSA FERNAND
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