The Power of Small Savings

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The Power of Small Savings
Sampurna Majumder - 24 April 2019

"Someone's sitting in the shade today because someone planted a tree a long time ago." - Warren Buffett.

Falling back on Buffet’s words it can be said that small is powerful and this statement is particularly applicable in terms of financial planning. Experts are always of the opinion that even if you start small, but start investing. It is a crucial step towards accumulating a huge corpus going forward.

Shweta Jain, Certified Financial Planner and Founder Investography, said,

“Starting is important. Even if it means taking baby steps. Rs. 5000 invested for 20 years at a 12 percent interest will amount to Rs. 50 lakh! The power of compounding is huge.”

Yes. This is the power that every investor or even an individual need to leverage upon. Or financial successes not only depend on how much we save but early do we start and of course how meticulous we are with it.

So, what are the benefits of the statement ‘Start Early, Start Small”? Here’s a look:

1. Teaches you financial discipline

Have you even observed the way ants work? They possess an innate ability to store for the future, although in small amounts. There’s a huge lesson that we get to learn from here. If we need to secure our future in financial terms, we must start saving in small amounts.

The best way to achieve this is by taking baby steps. Its rather simple. Just as your salary credited, keep aside at least 20 per cent of the amount in a savings account. The first two-three months might be difficult, but with time it will become a routine. Making these savings at the start of month and designing your monthly budgets with the remaining income is a great way of managing our expenses. It induces the much-needed financial discipline by allowing us to save for the future and live in our means in the present.

2. It becomes a habit of gain

Learning to save early and gradually making it a habit is one of the best practices to achieve your financial goals. Its advisable that make savings a habit just like taking a shower every day. We often tend to postpone our saving habits thinking that we don’t have enough today; but tomorrow when we have some more money, we will definitely save. However, in reality this theory doesn’t work. The more we grow old, more our responsibilities increase and so does our expenses. Saving at an old age might become difficult. Hence its always a good idea to start as early and good habit always pays off in the end.

Starting to save in smaller amounts from the early days of our earning phase ensures that savings become a habit. By keeping the amount of savings small, you may not feel the burden or need for major sacrifices in your lifestyle.

3. Leverage time in market; not timing the market

Someone who delays savings will have to raise savings rate substantially in order to have a secured future. And higher returns on the same cannot be guaranteed either.

It must be understood that bigger returns come with higher risks, where the downside is high. To be able to time the market becomes highly essential when we aim to achieve returns that are too high. It might come as a surprise, but very few have been able to successfully time markets and receive substantially higher returns. Hence its better to rely on the time in market rather than timing the market.

Make sure that you utilise your monthly savings for proper systematic investments. Invest over a period of time at different market levels. By doing so, we will not only be able to avoid timing the market but also benefit from the cost of averaging in the long run.

On a final note, it can be said that, in order to understand the power of small savings, one must start early and start small. Over time, the power of compounding will definitely bear fruits.

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