Darius Foroux Says We Are Saving Too Much . Is That Right? | Divya Toshniwal

So I recently read a post by Darius Foroux where he was pointing out that we may be saving too much for our future. The author quotes a piece of advice from his dentist which basically says that since you are going to earn more later there is no use saving so much for now. Alright, I agree that the best of our earning days are still ahead of me but so are the days of expenses. Though the intention behind the article was clearly good inspiring us to live in our present and not lose it in order to create a better future I do not completely agree with the article. 

Why should you start saving early?

Saving is important and so is an investment. The first reason you should start saving early is to reap the benefits of compounding. If you save $100 every month from the time when you are 20, by the time you are 60 you would have $3,41,549. While if you start the same investment at 30 you would have $1,46,477 when you are 60. And even if you change the amount to $200 per month by the time you are 60 you would still have $2,92,955. (Assuming 8% rate of return). That is the power of compounding. This is the biggest reason to start saving early.

The second reason is that saving is a habit. You need to develop it and it would not come to you naturally. The reason behind it is that we are motivated to spend more everywhere we go. The world has been telling us that to be happy we need to spend more. Better cars, better phones, better services will all make us happy. So, when you set a standard for your living all you see is how to enhance that not how to reduce your spending and live under your means. If you do not develop the habit of saving today it would become immensely tough in the later years of your life.

Though your income will increase in time but so will your expenses and that is the third reason why you should start saving early. Today you may be single, tomorrow you will have a spouse, and then kids and you'll need bigger homes, travel would cost more and so would eating out. You will have to pay for education. I hope not but chances are that you'll have more medical bills. So in spite of an increase in income the savings would not increase. So start saving today when you do not have piled-up bills in your post box.

How much should you save?

I wrote an article earlier ' Pay Yourself First' and as I said then, I stick to my words. Ideally one should save 20% of what they earn. If that is too much for you you can probably build your way towards it by starting with 5%. You can also divide this fund for different purposes like ' buying a home', or 'travel the world', or a retirement fund. How you manage your financial goals is a personal matter and if you need any help with that you should invest in some personal finance course or get a coach who can help you. 

Where should you save?

There was a time when people accumulated cash at home, then came a time when they started doing Fixed or Recurring deposits with banks. But with time and economic patterns changing, today keeping money in FD or RD is actually giving negative returns when you compare them to the inflation rates. The interest provided by banks is just not enough. The growing market currently is the equity market but not everyone understands this market. So if you are someone who understands the equity market and can do your own research that's probably the best option for you. You do need to keep in mind however that higher returns also mean higher risks. 

Another option for saving and investing your money in mutual funds. You can invest in a lump sum or make monthly SIPs. Here some experts would be at work to make your money grow for a nominal fee. 

SIPs are better than mutual funds because it creates a system, a habit to save every month, and as it's said - 'It is not better goals that result in success, It is better systems."

I always believe though that one should not keep all their eggs in one basket.

Some Personal Finance Books That Would Help You In Your Journey: 

Rich Dad Poor Dad by Robert T. Kiyosaki

The Automatic Millionaire by David Bach

The Psychology Of Money by Morgan Housel

Think And Grow Rich by Napoleon Hill

 

Engaging in a little self-promotion here but to get your basics about money and stuff clear read 

Minimalism- Be More With Less

I am not telling you to become a minimalist but this book would definitely help you bring down your expenses and save more.