Importance of small early savings
By: Monafa Club
Tags: Saving Money, Wealth, Financial Planning

“Someone’s sitting in the shade today because someone planted a tree a long time ago.” — Warren Buffett.

Remember the feeling of getting that first pay-check? Smells like freedom, doesn’t it? Earning money month after month feels like a roller coaster ride for most of us. We fulfil our monetary responsibilities and living expenses, and then splurge on the things we love such as a new smartphone and other luxury goods. It’s an exhilarating feeling to buy things we love with our hard earned money!

It is only after a couple of years that we realize that we got so lost in the earning and spending cycle, that we were not able to save anything!

Financial advice is a tricky business. You will find a lot of articles about where to invest your money and how to get rich, but no one tells you how to save that money in the first place! Personal finance management is an important life skill but no one teaches that to us. We either emulate what we have seen our parents do, which might not be optimal, or are left fending for ourselves.

In fact, finance is one of the only professions where a person without any formal training can do better than lifelong experts. With respect to money, how you behave is more important than an education and career in finance. There are countless stories of investment geniuses ending up with nothing and average Joe’s who retire with riches by following a financial discipline.

Importance of starting small & starting early

In Morgan Housel’s book ‘The Psychology of Money’, he gives an example of Ronald Read, a janitor and a gas station attendant, who shocked everyone when he left an inheritance of $8 million at the age of 92 to his relatives and charities. How did he end up such a huge amount on a janitor’s salary without winning a lottery?

On the other extreme, we have all heard of the legendary investor Mr. Warren Buffet who is one of the richest men in the world with a net worth of $85 billion. Do you know that 96% of his net worth was earned after the age of 65!

What is common between Read and Buffet? The fact that they started small, started early and were consistent with their savings and investments. They personify the saying: ‘one who moves a mountain, begins by carrying away small stones’.

Difference between being wealthy and looking wealthy

Money in the bank is a tricky proposition for most people. We do not know what to do with it, so we end up spending it away! We always have a wish list of things we want to buy, be it the latest smartphone or other luxury goods. But what we understand too late is that wealth is not in your possessions, it is what is in your bank account or other assets you don’t see. People who have become wealthy have done so by saving, and starting early.

In the long term, your wealth is a function of your financial behaviour. The faster you start saving money, the wealthier you will become over the long term.

How to start saving money?

James Clear, the author of the New York Times bestseller Atomic Habits, defines it as a habit which is small and easy to do, but has a powerful long term value. Applying this concept to savings, we can start off with saving small amounts each day, which might not seem much but will add up to a huge amount if we are able to stick with the habit for years.

We often do not start saving because we assume we do not have enough to save now, and would start at a later date. As our income increases, our responsibilities and expenses increase with it, but savings rarely follow that trajectory. We would be better off in starting saving from the early days and forming a habit out of it. By saving small amounts, we would neither feel the burden of saving nor need sacrifices to our lifestyle.

What is a good amount to save? One can aim to save at least 10% of the income each month. It might seem difficult at first, but by breaking it down into daily saving, it will seem achievable.

Benefits of saving money

The benefits of starting early and atomic savings are vastly underrated. You can start saving for a specific goal or to build your savings for when you might need it. You can go either way.

You might not understand the benefits, but once you have those savings, there are many doors which open up. The small savings that you start today can add up and compound to act as an emergency fund, education fund for a career leap or even help you achieve the holy grail of financial independence!

“The secret to getting ahead is getting started.” — Mark Twain

Do share in the comments about your savings journey and the challenges that you have faced!

Happy savings!