Financial independence is a tremendous feeling. Most of us strive towards that as we transition from education to the real world. The idea of “being rich or wealthy” differs for each individual, but it starts with financial independence. It means being able to make your own decisions, having the freedom to take a holiday when you want to or be able to help family or friends if the need arises. Unless one hits the lottery, money management is the means to that end and beyond, and the foundation of it lies in one practice – saving. The idea of waiting and saving up for something you really want sounds simple enough, yet most of us are unable to do it effectively and regularly.
Experience is the best teacher in most walks of life. Unfortunately, most of us may not have it in abundance, since over 60% of our population is under the age of 30. Research shows that lessons kids are taught by as early as 7 years of age may determine their habits for life. Therefore, it is critical to help kids develop this behaviour early. Instead of spending all the lunch money on a daily basis, putting aside even Rs 10 can lead to a nicer purchase within a few months and helps the child realise the value of patience. As a child, it may only lead to a pair of sneakers or a toy, but as you grow older, having the habit of saving can lead to much larger benefits. It may enable you to buy your first car, pay off any student or other debt you may have, eventually buy your own home and so on.
Anyone who has ever watched the American show Shark Tank would know of self-proclaimed “Mr Wonderful”, Kevin O’Leary. He’s a successful Canadian businessman and investor worth over $300m, who started from the bottom. One of the most important lessons he credits his success to is how his parents taught him the habit of saving one-third of his income, which he claims he continues to do so today. There are many other successful business people out there like him who have similar advice. For those of us who may not be able to save one-third, it is important to start somewhere and try and increase it gradually as you progress in your career. Every little helps.
It has been almost 10 years since the last economic crisis, and some may argue it still does not feel like the world economy has fully recovered. Pakistan seems to be on the up with the advent of CPEC, etc. but job security and career progression are still a concern in some industries. This makes it all the more important to secure your future and save for any unforeseen expenses or emergencies. It is difficult to put a value on the peace of mind one feels when there is a safety net available.
Come up with specific and realistic money goals. In his book “Secrets of the Millionaire Mind”, self-made millionaire T Harv Eker writes, “The number one reason most people don’t get what they want is that they don’t know what they want”. It may be a particular item you would like to buy, or might just be a money amount that you feel comfortable with. So ditch the small, daily purchases like your morning or evening coffee. Eat out less and cook more. Invest any money you are able to save. It is a common misconception that investing money is difficult for the average person and costs a lot of money. There are hundreds of products out there such as mutual funds and Defence Saving Certificates that are easily accessible and can be invested in starting with a few thousand rupees.
Let’s talk about Defence Saving Certificates for example. These are available in denominations of Rs 500, Rs 1,000, Rs 5,000, Rs 10,000, Rs 50,000, Rs 100,000, Rs 500,000 and Rs 1,000,000. These mature in 10 years but can be encashed earlier. This is a long term, yet highly liquid safe investment which is reflected in the modest profit rates. For example, a Rs, 1,000 certificate would be redeemed at Rs 2,070 after 10 years. More information on how to buy and redeem these can be found at: http://savings.gov.pk/dsc.asp. Similarly, there are savings accounts available with banks such as the Standard Chartered Easy Saver account which has no minimum deposit or balance requirements and profit is calculated on daily balances and paid out at 4.5% APR on a monthly basis.
There are many mutual funds available which cater to all kinds of risk appetite and timing preferences. For example, stock-based funds (invest exclusively in stocks) such as the UBL Stock Advantage Fund has provided steady growth and returns since it opened in 2006. If you had invested Rs. 5000 with them on 1st March 2016, exactly a year ago, you would have had Rs. 7473 today – a 49% return! Stock funds generally provide a higher rate of return but there is a higher risk profile attached to them as well. With UBL, most of their investment schemes start with as little as Rs. 500 and you can keep investing as you go. Each product varies in its requirements such as minimum balances, maturity, rate of return and liquidity (i.e. how easy it is to withdraw your money) – so speak to your bank and understand which product suits your needs and start saving!
One way we try to help is to allow you to make an informed decision when it comes to buying a product like a loan, insurance or even internet! Use such facilities and make the decisions that are in your best interest.