When asked "What is your savings formula?"

Most people reply

"Income - Expenses = Savings"

If you are one of them then this episode is a must watch.

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Is this a correct way to save?

Are there any issues with following this approach?

Is there a better way to save and have a better financial life?

Learn the savings formula given by world renowned Warren Buffet in this episode of Money Ki Baat.

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जब पूछा जाता है  कि "आपका बचत सूत्र क्या है?"

ज्यादातर लोग जवाब देते हैं

"आय - व्यय = बचत"

यदि आप उनमें से एक हैं तो यह एपिसोड जरूर देखना चाहिए।

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क्या यह बचाने का एक सही तरीका है?

क्या इस दृष्टिकोण का अनुसरण करने के साथ कोई समस्या है?

क्या बचत का कोई बेहतर फार्मूला है ?

मनी की बात के इस एपिसोड में विश्व प्रसिद्ध वॉरेन बफे द्वारा दिए गए बचत सूत्र को जानें।

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Are there any burning questions giving you sleepless nights?

Write to us at anmol@7prosper.com

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Disclaimer: This podcast is for educational purposes only. Anything said should not be construed as advice. Make your investments only after consulting your financial advisor. If you're interested in our financial planning service, visit us at: www.7prosper.com

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Transcript:

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Hi Guys. I am Anmol Gupta from the show Money Ki Baat.

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Have you heard about Warren Buffet? He is one of the richest men in the world and also one of the most successful investors.

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Warren Buffet has stated a simple principle related to Savings and Expenses.

In this episode, I will talk about that principle.

In case if you have not subscribed to my channel, then please do hit the subscribe button and also press the bell icon to stay updated with my upcoming episodes.

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So let's talk about Warren Buffet's principle.

We can use our monthly income in two ways.

We start spending our monthly income as soon as we receive it is one of the approach.

First, we focus on our basic expenses like housing, food, electricity, telephone bills, internet bills, children's school fees, etc,

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These are the expenses that cannot be avoided. After meeting the basic expenses, we keep some money for our leisure expense like traveling, movies, online subscriptions, online or offline shopping, etc.

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These are the expenses that are not mandatory but form an important part of your lifestyle.

Apart from these, you may have few one off expenses like money required to fix something which is physically damaged, purchase a new phone, etc.

These are unforeseen expenses. After meeting all these expenses, the money that you're left with, is your savings.

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You either park your Savings in your Bank Account or you invest it for your future.

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In this case, the amount of your savings is not constant and depends on how much you have spent.

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If, in a particular month, you spend more that what is required, then you might not be left with enough savings to invest for your future.

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It might also happen that you didn't spend much in a particular month and you are left with more surplus to invest for your future.

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This approach has a limitation. Your expenses do not only include basic, leisure and one off expenses. In future you might come across big expenses like purchase a house, purchase a car, children's higher education, or going on a vacation

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Your monthly income might be insufficient to meet these kind of expenses in future. You must not only save money for such expenses, but also invest to make your money grow, right? These kind of expenses cannot be fulfilled with your monthly income.

If we decide our monthly savings and investments on the basis of how much we spend that month, then the future goals might not get fulfilled.
That will completely depend on your current expenses, right?

To avoid this problem, Warren Buffet laid down a principle which says, whenever you get an income, first set aside some part of it as your saving.
Suppose, your income is 50,000/- per month. set aside 20,000/- as your savings and invest it. Then you can spend the remaining 30,000/- that you're left with after savings. You can spend the remaining money on your basic, leisure and one off expenses.

In this case, your future will be secured and you also have a budget of spending your money.

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When you have a fixed budget, you prioritize your expenses. When you have money in your savings account which is easily available, you develop a tendency of spending it unnecessarily.

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However, if you save and invest your money first, then you can prioritise your expenses that have to be fulfilled with the amount left after saving.
First, you will spend for your basic and necessary expenses, then for your leisure expenses and post that if you're left with some money, you will use it for your one off expenses.

So what Warren Buffet says is, "Don't save what is left after spending. First save and then spend whatever is left after savings."

I am not saying that you should not spend  your money and invest all of it for your future. You must draw a budget of your income and expenses.
You should have sufficient money to bear your both current as well as well as future expenses. You must maintain a balance. You should not utilise all your money for current expenses and save nothing for future. Also you should not save all your money for future and live a life of a miser. Ultimately what matters is, you're living happily.

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To keep your current and future life secure, you need to maintain a balance between your savings and expenses. We don't think much before spending money to keep our current life secure.

However, we forget about our future. Hence, we need to put a little more effort to make our future secure. In which we just need to take out a fixed portion of our monthly income and invest it for the future.

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And it is not very difficult to do the same.

You can start with SIPs or Recurring deposits, where the money automatically gets deducted from your account. This auto debit service is available with all the investments options available in the market. Which means, the money automatically gets deducted from your account a day or two after your salary is credited.

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You can spend the remaining amount without any guilt or worrying about your future.

So guys, as Warren Buffet says, "Don't save what is left after spending. Instead, spend what is left after savings."

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Thank You.

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