The best ways to save small amounts of money
Since the new interest rates on deposits are quite good today, it is high time for everyone to take advantage of the present situation and take their savings to the maximum level. The middle class needs to focus on small savings and this can be done in a very systematic manner. Some ideas are discussed in this article.
Introduction Some banks have facilities to open FDs with amounts as low as Rs.500 and also open recurring deposits with small amounts like Rs.50/-. The question that naturally arises is: how does one find this money? Obviously, there are only two ways in which savings is eminently possible. One is through the simple method of cutting costs.
While this is very common advice, not many know or understand how to do this. An acquaintance told me about a lady who was a postgraduate and would give tuition to children in the neighborhood, and whatever little came out of the tuition was immediately put into recurring deposits, for a long duration, generally eight to ten years. Today one of her children is working in the USA and he repay the loans taken from relatives to finance his education; another child took up a career as a lawyer; a third is an engineering student. At every moment whenever the family needed some money, the recurring deposits helped.
Let's look t the ways to small savings- a) Through recurring deposits b) Through Fixed deposits c) Through PPF d) Accumulating small quantities of gold and e) In plots in the outskirts of towns.
Through recurring deposits Give up the urge to spend huge money on clothes, eating out, costly travel, and costly gifts to relatives. Like the lady quoted above, who provided for the basics and saved all money, we can easily find Rs.1000 per month, if we try. Ordering from out is fine but should be avoided when we can easily prepare better dishes at a much cheaper price. The Federal Bank and the Canara Bank facilitate the opening of recurring deposits for as low as Rs50/-. Some post offices also have this facility, though according to rules, an RD can be opened for as low as Rs.10 in post offices. Always make it a practice to open up to six RDs every year.
Find ways to earn a little extra money through some good work. Small trading activities can also bring in extra money. Once the money comes, the extra money should be compulsorily saved. Cost--cutting can always be done, too, if we seriously try. Non-vegetarian food, for example, should be restricted to small amounts, once in three months.
Through Fixed deposits Open an FD for just Rs.1000 for ten years. When the matured amount of Rs.2500 comes back, we will feel very happy. There are some good banks offering up to 7% on such long-term deposits. Seize the moment and do the savings right now.
Through PPF This is called Public Provident Fund. The biggest advantage of this wonderful scheme is that the capital amount and the interest are also not taxed. It is a 15-year scheme, ideal for the best long-term savings like marriage, higher education of children, and so on.
This is a very good scheme, as the present rules mention that a minimum of just Rs.1000 per year, as savings, is good enough to keep the account operational. This means that an amount of Rs.100 per month is good enough. However, we should note to put all the little extra money, through targeted savings into such a good scheme. It should be noted that the PPF can be extended for another 5 years at a stretch. So, if one has a time horizon of 25 years, the entire corpus is tax-free. If the corpus is put into an FD, tax has to be paid, but by then, the Government of India will come out with some scheme that will enable the middle class to reduce tax, apart from the existing schemes.
Accumulating small quantities of gold Some part of one's income can be invested in gold/gold schemes from time to time. You could keep a target of a number of years for this investment, so that over a period of time, you will have a good amount. This is a very good strategy, as gold can never ever depreciate.
In plots on the outskirts of towns Areas that are highly developed also will have just developed areas within a five-kilometer radius, and it is wise to take some personal loan to invest in such plots. For, when the existing areas become saturated, the people are forced to go to the suburbs for living. At that time, the prices of plots will increase manifold and over a ten-year period, the return on investment will far exceed the returns from bank investments. However, it is wise to not invest all money in real estate. There could be restrictions on real estate investments in the future and when that happens, our investment can be in trouble. Never put all eggs in one basket!
ConclusionA good percentage of people of India are still those whose current average income is around Rs.30000 at current prices. They need some ideas to get going. Small savings will always come in very handy and hopefully, the ideas discussed above will be useful to such people.
An interesting article providing and illustrating various ways for small savings. Saving is a habit but it does not come automatically. One has to be sincere, punctual, and disciplined in life to have that trait. People who are spending more than their earnings are always under loans and their lives become a terrible mess. Until unless a person is having control on one's expenses there cannot be a saving.
For those people who have small amounts avilable for saving every month, the recurring deposit or RD as it is commonly known is the best bet. The money grows cumulatively and earns the interest accordingly. Once a good amount is deposited then on maturity of this deposit one can park that in FD which are currently providing 7% (7.5 % for senior citizens) return.
One matter of caution is that one should be careful and should consider to deposit money only in reputed banks etc and should not fall for the advertisements of various financial companies which claim that they give higher return than the Govt banks or post office schemes. This caution is necessary otherwise one can lose money in dubious financial companies. The hard earned money has to be invested in safe and secure schemes.