From pocket change to prosperity: How small savings can help build a big corpus

Wealth creation happens when there is consistency. Saving a coin every day will lead to a tidy sum over time. Besides, this conscious effort to save will foster a valuable saving habit, control wasteful spending, and lead to the creation of a corpus which can be utilised productively.

Budgeting basics

Just like the union budget, every individual should have their own budget for better financial planning. Children, too, can make a monthly budget and prioritise their needs. This will help them track their spending and identify areas where they are incurring unnecessary expenses.

To prepare a budget, children can simply apply  the 50-30-20 rule. They can allocate 50 percent of their money for their needs, such as their transportation, stationery, etc; 30 percent for outings with friends or expenses like entertainment,  shopping, etc; and 20 percent for savings, whether in their piggy bank, a fixed deposit account, or any other investment option.

Financial goals

Financial goals should be SMART — specific, measurable, achievable, relevant, and time-bound. For example, instead of saying, “I want to save money,” a SMART goal would be: “I will save ₹5,000 per month for the next three years to accumulate ₹1.8 lakh for my higher education.” It is important to have a target or a goal that one must aspire to reach.

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First steps in investing

Savings alone may not be able to generate enough wealth — the right investment can be a great enabler. Multiplying money is crucial in order to generate wealth. Below are some safe and secure options, not only for students but  for any individual:

Fixed deposits (FDs): a secure investment where individuals can deposit a lump sum for a fixed tenure and earn guaranteed interest. It is ideal for risk-averse investors seeking stable and predictable returns.

Public Provident Fund (PPF): a long-term, government-backed savings scheme offering tax benefits under section 80C of the Income Tax Act. With a lock-in period of 15 years, it ensures secure wealth accumulation through compounding.

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Compound interest

The magic of compound interest helps turn one's small savings into big money. Albert Einstein once said, "Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it."

Compound interest, or interest upon interest every year / quarter,  gives one's savings a push and helps it grow faster. But it doesn't happen overnight. The power of compounding increases when one starts early, even if it's with one's small savings.

Smart spending

You should spend your money well. Simple things like differentiating between wants and needs will help identify what you need to spend on, and what to avoid / postpone. Being frugal doesn't mean that one needs to sacrifice enjoyment, but conscious spending means maximising  value by avoiding unnecessary expenditure.

Financial pitfalls

Financial missteps are common, but learning from them is essential. Some common pitfalls include:

• Not tracking expenses: this leads to overspending and loss of control over finances.


• Living beyond one's means: leads to accumulation of debt due to lifestyle inflation.


• Not having an emergency corpus: leaves one without a financial buffer for unexpected expenses.


• Delaying investments: you lose valuable time that could boost wealth through compounding.


• Falling for get-rich-quick schemes: you risk your hard-earned money on unverified opportunities.

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Conclusion 

Wealth creation does not happen overnight. From saving a fraction of your pocket money to investing wisely, every step taken today lays the foundation for a secure and prosperous future. The key is to start early, be disciplined, and make informed choices.

Remember, financial success is not about how much one earns but how well one manages what they have. Start small, think big, and watch your wealth grow.

The author is CEO of FPSB India.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.