How to balance spending and saving in early career to create long-term wealth

Have a long-term outlook | Timing investment is logically impossible because the best entry and exit opportunities are known only in hindsight. No one can predict market movements with certainty. Therefore, it is important to allow your investments to compound over a long term.

Are you in early stages of your working life and unsure about how to go about organising your finance? Despite a decent pay packet you find yourself running out of cash towards the end of each month leaving you with nothing to spare and invest for the future.

You can avoid this predicament should you have a proper balance between saving and spending. Creating a portfolio for the future from your earnings is not a difficult task. It just requires a bit of financial discipline on your part.

Financial planners suggest drawing up a budget for the month and setting aside a fixed portion of salary as saving to be invested to create long-term wealth.

“People who earn in thousands can become crorepatis by diligently following the path of savings and investments. The era in which we live presents countless opportunities and varied income levels. At the same time, we also have more ways than ever before to consume and spend. The point is never how much you earn, but how much you manage to keep—and more importantly, how much you put to productive use by investing,” Amar Pandit Founder & Chief Happyness Officer at HappynessFactory.in, told Moneycontrol.

The strategy should be to have a saving and investment budget in place. “From your take home pay, you must set aside a fixed amount that you save and then invest wisely. You can spend the balance amount guilt free,” says Pandit.

He says at a young age it not about how much you save, but inculcating the habit of saving and investing in a disciplined manner. It could mean starting with saving a nominal amount of from your salary and gradually scaling up to 5-10%. “All of us can easily save 5-10% of our income without feeling the pinch. Eventually, you can scale it up and try and save and invest around 25% of your income. This will ensure that over a period of time you will have a sizable corpus for your goals and your portfolio will also be diversified with several asset classes in it,” says Pandit.

Anil Rego, CEO and Founder, Right Horizons, says a youngster in his early career should try and set aside 20 per cent for savings, and invest part of it in tax-saving schemes. “It is easy to achieve a balance between saving and spending if you have some self-control. Even if you are in your initial days of working life, you should save at least 20% of your take-home pay, and invest half of it in tax-saving schemes. Tax saved is automatic saving. An easy way to begin is if you live in your parent's house, start saving money that you would ordinarily have paid rent elsewhere,” he said.

Rego says those with monthly expenses more than the salary should identify items on which spending can be curbed. “If your monthly expenses are more than your income, you have to prune spending. There is no sweet way of putting this! Jotting down actual expenses in a month will give you a clear idea about what are the biggest spends. Once you identify them, you can bring them lower. Saving in investment avenues with a lock-in of 1 to 3 years will ensure you do not fritter away them impulsively,” he said.