A big reason for the shift in the general saving habits can be attributed to ‘dual income, no kids’ families
‘It was different in our times’ is a phrase we often hear from the generation before us. Eating out was a “treat” and birthdays and anniversaries were looked forward to with great anticipation. New clothes and jewelry were bought once a year when the earning members received their yearly bonus or else on festivals such as Diwali, Eid or Christmas. Focus remained on saving. Spending was restricted to what was left after keeping aside for a rainy day.
As per CMIE (Centre for Monitoring Indian Economy Pvt. Ltd.), savings rate in India declined to 31.6% in 2015-16, compared to 32.3% in 2014-15. Household sector contributed to more than half, i.e., 59.2% of the total savings. However, this was compared to 62.0% in 2014-15.
A big reason for the shift in saving habits can be attributed to DINK families. DINK stands for ‘dual income, no kids’ families and is used to describe a couple who both have careers but have no kids, by choice or otherwise. Times have changed over the last two decades and marriage and children, is not anymore considered a way of life but rather a conscious choice that an individual or a couple makes. Following the culture of this conscious choice making, there comes a lifestyle that is focused more on ‘living today’ than worrying about tomorrow. Eating out regularly, taking vacations at the spur of the moment, acquiring the latest tech gadgets is considered as a normal way of living and not termed as extravagant anymore. The concept of ‘saving for a rainy day’ no longer resonates with this generation and a tendency to save is looked as an optional ‘good-to-have’.
As much as the concept of living for today is a good idea, it does come with its disadvantages if taken to an extreme. The need for budgeting needs to be ingrained from the very childhood.
To make an effective budget, there are three things that you need to keep in mind:
Make a list of your expenses: List out your expenses and make a note of the unnecessary ones. This is not with an intent to stop these expenses completely, but rather to be aware of what needs to be cut down upon if you want to increase your savings.
Analyse your average monthly income: Total up your monthly incomes, annual bonuses and interest and other income and average it over the year.
Prioritise your needs to distinguish them from wants and desires: Decide on your ideal savings and set up your expenses in a prioritised manner over the year. Once you prioritise your expenses, you still can spend on what you want but with a sense of awareness over how important and necessary the expense is and whether it trumps the necessity to save.
A propensity to save will help you overcome any tide in the short term and long term. The three things to be kept in mind while budgeting are:
Match your monthly income and expenses. Any excess savings may be considered to park in a debt linked mutual fund. Secondly, once you achieve comfortable liquidity, you may consider focusing on short-term investments. At this juncture, one can consider a hybrid or a balanced fund. It aims to minimise the risks that an equity-linked mutual fund would possess and would result in higher returns than a debt-linked fund. Additionally, it will also help you start on the path to maximising potential for long-term returns.
Additionally, along with short term, there should be a focus on long-term asset planning. Park a portion of your savings in equity-linked mutual funds. The risk in this fund is higher but over the long term it gets marginalised with the highs and lows in the market balancing out. However, the focus should remain on choosing a professionally well managed fund.
Prioritising expenditures and questioning the importance of every expense is a habit every individual should strive to inculcate. The line between needs, wants and desires is thinning to an extent that consumers have started believing that everything is a ‘need’ today. Small steps towards increasing savings today will prove to be beneficial over the long run.
THE CATALYST
- A big reason for the shift in the general saving habits can be attributed to ‘dual income, no kids’ families
- Marriage and children, are not anymore considered a way of life but rather a conscious choice
The writer is senior fund manager – equities, BNP Paribas Mutual Fund
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 "Effective budgeting")
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