How Does The 7 Rule For Savings
Work?
While earning is important in
today’s world, what is even more important, is putting money aside and
investing it. Too often, people tell themselves, “I’ll save once I start
earning more”. The reality is, saving is a habit and it is not entirely
dependent on one’s income.
To cultivate this habit, experts
propose the “7 Rule for Savings” which helps you systematically allocate a
portion of your income, and ensure a secure future.
What are the Seven Savings Rules?
It is recommended in the Seven Rules
for Savings that you should save at least 20–30% of your monthly earnings. Simply
put, it follows the 70-30 Rule, which is similar to the 50-30-20 rule.
You ought to use 70% of your
earnings on expenditure, and 30% on savings and investments.
The 7 Rule of Savings (Explained)
1. Live on 70% of
your income – Create a living that fits comfortably within 70% of what you earn.
2. Save 30%
separately – Never spend this; keep it only for savings, FD, SIP, or investments.
3. Pay yourself first – As soon as you
get your salary, move 30% to savings before spending.
4. Reduce avoidable
expenses – Cut down luxury shopping or unnecessary spending to increase savings.
5. Create an
emergency fund – Keep 6 months' worth of expenses in your savings account or FD.
6. Start investing – Study SIPs,
mutual funds, gold, or stock markets to let your money grow.
7. Link savings with
goals – If it is a house, kids' schooling, or retirement, link your savings to
life goals.
Why is the 7 Rule for Savings
Important?
1.
Assists in the case of sudden
emergencies.
2.
Initial step to financial freedom.
3.
Salvages you from unwarranted debt
or loans.
4.
Fortifies your future and
retirement.
Conclusion
The 7 Rule for Savings or the 70-30 rule isn't theory
but a working financial plan. If you save 30% of each check you receive every
month, in short years you'll have a solid financial safety net.
Bear in mind:
"Making money is an art, but
being frugal is wisdom."
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