Finding it tough to save? Direct deduction can help

Arthashastra

A very difficult task for an individual is to invest through savings from their income. There are a lot of areas and expenses that are fighting for attention of individuals and, hence, it is not easy for them to save on a regular basis. Regularity factor is important while saving because often, irregular savings does not give out any meaningful results at the end of the day. Here are a few ways in which you can ensure that you are able to stick to a plan on a continuous basis without any problems.

Firm commitment: An easy way to go about the investment process is to transfer money or invest in a particular asset when funds are available. In this process, the fund crisis can create large time gaps between two investments for investors. Lack of fixed schedule for investment could lead to large gaps between investments, which might not be a good thing.

The way to tackle this situation is by having a firm commitment to make specific investments in a fixed time duration that cannot be changed. This, in turn, will make investors plan to get to the end point and ensure that targets are met. An example of this would be to make a commitment to invest Rs 1 lakh in mutual funds during the year. Giving instructions through ECS or post-dated cheques could ensure that this becomes a forced investment. This might seem to be very difficult in the initial stages, but once it is started, investors will realise that it is not so difficult and that the end results outweigh the initial trouble that might be faced.

Direct deductions: There are various reasons why the amounts that are actually earned do not end up being saved. It is very easy for an individual to take a look at the flow of funds and single out certain expenses that would be saved and invested, but when it comes to the actual process of doing so, they realise that the money has already been spent elsewhere. This is the area where the factor of direct deduction comes into play.

In direct deductions, a specific amount goes directly into the investment from the bank account, ensuring that the investment is completed. The time period for this is set in such a manner that there is not much time when the amounts here are lying in the bank account, so there is a lower chance for this being spent. Once this situation is witnessed for some time, the investor will become used to the process of having a lower amount available for investments. This can be done by having direct deductions from salary or from transferring regularly from the bank account so that a specific amount is set aside and does not become available for being spent.

(The writer is a CA and certified financial planner)

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