Nov 08, 2013 05:13 PM IST | Source:

Not able to save properly? What's your excuse?

Saving is very important – in fact it must come to individuals as simply as breathing or even as necessary as breathing. Failure to save can lead to financial ruin, writes Nirmal Rewaria of Edelweiss Securities.

Nirmal Rewaria
Edelweiss Securities

When it comes to saving individuals usually have a ready reckoner of standard excuses. While some reasons are genuine – others can only be classified as the dog-ate-my-homework variety – in other words there is lack of intent.

Saving is very important – in fact it must come to individuals as simply as breathing or even as necessary as breathing. Failure to save can lead to financial ruin. The moment investors understand this simple fact, they will put an end to excuses and take deliberate steps towards saving.

When they are young, just starting out in their career paths, individuals do not place a lot of importance on providing for financial security.

We have seen delaying financial planning only transfers the pressure to the later years when individuals have the added responsibility of managing families, buying bigger houses etc, which squeezes the available surplus.

Also studies have shown that increasing the contributions in the future does not help bridge the gap created by delayed investing.

So why do individuals delay planning for their finances? What are their biggest excuses?

We list the four most oft-cited excuses for not saving:

1. Higher expenses
Studies in US markets have shown that over 40% of workers cite higher living expenses such as rent, lifestyle expenses, and household expenses amongst others as a hindrance towards saving.

While there can be no taking away from the fact that expenses have spiked over the years, this cannot be a reason to skip saving.

From a young age, individuals must consider paying themselves first by saving and then providing for expenses from available surplus and not the other way round.

2. Too much debt
Another excuse that comes naturally is – I have too much debt and can’t think of saving.

Individuals have loans – personal loans, home loans, auto loans, even student loans for their own studies.

Then of course, there is credit card debt.

The debt burden shackles the individuals’ finances not allowing them to think beyond paying off dues.

To be sure, it is prudent financial planning to pay off debt first. However, individuals must unearth the surplus, even if it calls taking up an additional part-time job or freelance work, to start an investment plan with basic contribution.

This can be raised later as the debt declines. 

3. Inability to understand the investment plan
This qualifies as the dog-ate-my-homework excuse. In other words, they show lack of intent more than anything else.

While some investment plans are confusing and intricate, they cannot be cited as reasons for not investing. Either such plans are not meant for you in the first place, or they can be understood by discussing the same with your financial planner.

If crunching numbers and financial planning is not your thing or stresses you out consider engaging a reputed financial planner who can prepare a financial plan for you that takes into consideration your financial objectives and risk profile.

4. I am never going to retire
Lot of individuals love the work they do, so much so they cannot picture themselves retiring.

But really, retirement is not always by choice. At times individuals are forced to retire because they are ill, get disabled or are simply laid off. Then there is the retirement age limit when you must retire no matter how much you love your job.

So individuals will in fact retire in the future, whether they like it or not.

And it is for this eventuality that they must plan deliberately. So it is a good idea to start saving towards retirement earlier on regardless of whether you have plans to retire or not. At least you will live secure in the confidence that you have a safety cushion for emergencies.

Attaining financial independence or complete ‘nirvana’ is a compelling reason for one to start planning for your finances and start saving.

The author is Senior VP & Business Head at Edelweiss Securities.

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