Don't Let Delays Drain Your Wallet: The Definitive Guide to Saving Wisely

If you are waiting for the right moment to start saving, you’ve already lost a major part of your savings.  

Wondering how? It’s simple!

Every delay in investment reduces the amount of returns you would have received if you had invested earlier. If you take a policy much later in life, you will need to pay higher premiums to compensate for the lost maturity benefits. This additional amount you pay is known as cost of delay. 

Here is an example to illustrate: 

Rajesh wants to invest Rs. 10,000 in a retirement plan but lets it sit idle in his savings account. Assuming an average annual return of 8% in the investment account, here's how the cost of delay would accrue over time: 

Investing Rs. 10,000 immediately = receives approximately Rs. 46,610 after 20 years 

Delaying it by 5 years = receives approximately Rs. 32,071 after 15 years. 

Rs. 14,539 is the cost of delay in investing, i.e., the earning he has lost.   

You can calculate your cost of delay using the online IndiaFirst Life Cost of Delay calculator. The calculator maps out the impact on your finances if you delay your financial planning by some months or years.  

Impact of delay in saving

Delaying savings can hinder financial progress and limit your ability to achieve long-term financial goals. It is essential to start saving early and consistently to build a strong financial foundation and secure a better future. The best way to save money is by cutting out unnecessary expenditure, or by setting life goals. If you do not start saving early, you are missing out on many benefits: 

1. Higher returns 

Money needs time to grow. One who invests at 24 years of age will have a larger capital or earn higher maturity benefits at age 65 years than one who starts investing the same amount at 40 years.    

2. Low Compounding Benefits 

Compound interest is when the interest you earn on your invested capital also earns interest. Compounding creates a larger corpus and the longer you are invested, the higher the returns.  

3. Risk appetite and its implications 

A younger person has fewer responsibilities and hence, a higher capacity for risk. As you grow older, family commitments take priority, which may compel you to invest in safe products that do not yield powerful returns.  

Why saving money is important 

Life runs on money. The more you have, the better your quality of living. Saving money gives you the confidence to plan for and achieve long-term goals. It offers monetary security, which reduces anxiety about unforeseen events or financial hardships. Most importantly, it opens doors to further opportunities and investments. 

Best way to save money  

When it comes to saving, numbers are everything. There are many ways to save money and you can start being disciplined by following these budgeting basics:  

The 50-30-20 Rule recommends putting 50% of your earnings toward needs, 30% toward wants, and 20% toward saving for future goals.  

The 3X Emergency Fund Rule advises setting aside an emergency fund that is at least three times your current monthly income. Of course, the number can be steadily increased as your earnings increase. 

The 8% Rule mandates that any investment you make must earn you at least 8% returns per annum after taxes. Or else, it’s not worth it. 

The 20X Life Cover Rule ensures that your life cover is at least 20X your current annual income. The more cover the better.  

Investing early comes with many advantages, but it's never too late to start. Prioritizing the alignment of investments with your financial goals is crucial. While saving is important, relying solely on a savings bank account may not beat inflation. Investing in instruments that match your risk profile and financial goals offers a higher chance of achieving desired returns. And give you the quality of life you desire.