Even if you feel that you don’t have any, you can still save money!
The Design to Saving Money
Even if you feel that you don’t have any, you can still save money!
By Ayesha Baig, FMFB
Salim Khan and his family moved to Karachi in mid 2002, when he found a decent job with a software company. After years of scrimping and saving to pay off his earlier debts and repositioning themselves in the new cosmopolitan city, they had earned a tidy station in their social society. Yet, ten years later, the 42-year old IT manager, is still sitting on the sidelines, renting while real estate prices march ever upwards in the city, and worrying over how he would send his three adolescent children to good universities. The decision ten years ago might seem like a prudent move in an uncertain economy; but Salim says that financial insecurity still keeps him awake at nights.
Pakistan’s economy has considerably lost its growth momentum during the last five years – the economic growth rate has averaged just around 2.6% as against 5.3% in the preceding eight years. The multiple reasons like the global financial crises, intensification of war on terror, security hazards, political instability, acute power shortages and the devastating floods for three consecutive years, have not only decelerated the economic growth, but has had spill-over effects; the ever increasing food prices and inflation has adversely affected the everyday life of simple people living in this country. Undoubtedly, the financial insecurity that Salim Khan faces……or you and I fear?
Why Do We Save?
People save for a variety of reasons. I, for one, save for more security – to know that if I fall sick, I will not have to rely on others to foot my hospital bills. I would not need to run up a debt to buy food or pay my utility bills, and life would not change much for me. More so, I save for my retirement – to be able to live comfortably like I do today, 20 years from now when I will not be able to work or earn any money. A part of this feeling comes from my ego or my long standing principle to be financially independent and not accepting help from others. Notwithstanding this may sound like denying altruism, yet in the current times with everyone, even your close relatives and friends, having various financial burdens, is this wrong to think?
There are others who save for their children’s future – not just for their higher education, but to give them the best at every stage in life. They plan to save on regular basis from the time the child is born, so that the child is even able to start with a good play school. People save to buy a house for themselves or for their retirement; so technically they are asking their current self to take care of their future. They are giving themselves the ability to depend on themselves for a while longer – so that in their old age, they have the financial security. And then there are others who save for emergencies – the unforeseen events like natural calamities and financial shocks, and life-cycle events like untimely death of a close one, which can change their life overnight. The important thing here to realize is the circumstances we live in today…. and plan for a better tomorrow.
How To Save?
You may feel that you do not earn enough to meet your basic needs, and hence you cannot save. But even if it may seem like that you have nothing to save, you can still save money.
It is important that you set saving goals, both short term and long term goals and an attainable time-frame to achieve these goals. Accordingly, you can then calculate how much you need to save per day, per week or per month to achieve these goals. You do not need to save a big amount – it can be any amount, but on a regular basis. It is important to control how much you spend in order to be able to save on regular basis. Keep a record of all your expenses, and do not spend more than what you earn. Think about how you can trim your expenses. Can you cut down on car fuel, restrict eating out and forwarding unlimited sms jokes, or even taking one less cup of tea on daily basis? I have seen poor women in Lahore who started saving as small as Pkr 100 per week once they started keeping a record of their daily expenses. They realized that they were spending Pkr 20 more during their daily grocery shopping, which they could do without and they also stopped giving extra pocket money to their children to spend at school canteen. Hence, reassess your financial goals and make your budget. Savings should be your priority, so do not just save whatever is left over at the end of the month. Treat your regular saving as a bill and pay it as soon as you get paid. A fixed amount of deposit each month requires little thought; over several years, you would have a sizeable sum in savings. However, good things often take time and longer than you expect. So do not get discouraged and do not give up if the desired amount of saving does not happen as you planned. The important thing is to stick to the plan.
Where To Save
Savings should be put in a place which ensures security, liquidity and appropriate return to the saver. You should consider the following before placing your savings at any place/institution:
1. Legal Status: The institution’s legal status and whether it is licensed and regulated by the State Bank of Pakistan is important to ensure the security of the savings. The SBP ensures depositors’ interests with the institution;
2. Shareholder/Owners of the Institution: The financial strength, market reputation and the success of other businesses of the shareholders confirms the security of the savings with the institution;
3. Credit Rating: Credit ratings are assigned by external agencies to financial institutions based on their level of their services and transparency of operations. It is therefore an indicator of the institution’s credibility and capacity.
4. Management: Assess who would be managing your saving and whether they have the right expertise, knowledge and experience to do so. A regulated bank has professionals who are experts in managing the savings so that they remain secure and liquid;
5. Easy Access/Liquidity: Another factor to consider is whether the funds placed with the institution can be withdrawn at times of need. If they cannot be accessed, the objective of saving is lost;
6. Earnings/Return on savings: One must consider the return on the investment being made. The deposited amount should earn a return for the depositor based on the competitive market rates. It is important to bear in mind that informal financial institution like pawn house, village organization, cooperative society, individual investor, etc offer higher than market based returns to attract people to place savings with them. However, such institutions are not regulated by the State Bank and their operations are not supervised by any independent governing body. Hence, the efficiency, transparency and sustainability of their operation is at risk. May be today, they might be able to offer you a better rate, but they may not be there tomorrow to even give you back your principal saving. Therefore, strike a balance between return and risks before deciding where to place your savings.