Boost Your Financial Savings in 2024: A Guide to Building Wealth

Economists are raising concerns about a possible recession in 2024. Having a strong savings buffer can help you weather any economic downturn and protect your financial stability. Inflation is expected to remain elevated in 2024, potentially outpacing wage growth. This means your purchasing power will be low, highlighting the importance of additional savings.

Conflicts and political turmoil can impact markets and disrupt economic activity. Increased savings provide a safety net during times of global uncertainty. Ongoing supply chain issues can lead to higher prices and shortages. A larger savings cushion can help you cope with unexpected expenses due to these disruptions.

By prioritising saving in 2024, you can navigate the year's uncertainties more resiliently and prepare for a brighter financial future. Remember, even small savings efforts can make a big difference over time. Every rupee saved is a step towards financial security and achieving your personal goals.

[Read: Follow These 5Ps to Take Control of Your Finances in the New Financial Year]

According to the Reserve Bank of India's (RBI) Financial Stability Report, December 2023 - India's Household Gross Financial savings, which had surged during the COVID-19 pandemic to 15.4% of GDP, plummeted to 11.1% in 2021-22 and further to 10.9% in 2022-23.

As a result of the rapid rise in financial liabilities (high borrowing costs), the Net Financial Savings of households have also fallen sharply to 5.1% in 2022-23 from 11.5% in 2020-21, well below its long-run annual average of 7.00%-7.50%, as per the RBI. That said, India's household debt is less than other emerging market economies (EMEs) by around 37.6% as of March 2023 versus 48.3% for EMEs.

This article equips you with actionable strategies and practical tips to boost your savings in the new year 2024 and secure your financial future.

Step 1: Engage in Prudent Budgeting - Track and Analyse Your Spending:

Before saving, you need to understand where your money goes. Tracking your spending for a month gives you a clear picture of your financial habits and reveals potential areas for improvement. Utilise budgeting apps or create a spreadsheet to meticulously track every expense, from groceries to subscriptions. Analyse your spending patterns and identify areas where you can cut back without compromising on essential needs.

Actionable Tips:

• Identify 'money drainers': Find recurring subscriptions you rarely use, impulsive purchases, and frequent dining out.

• Challenge yourself with no-spend days: Dedicate a few days each week to spending only on the bare necessities. Avoid splurging on food cravings and retail therapy.

• Embrace cost-effective alternatives: Opt for public transport or consider carpooling as opposed to using your own vehicle and spending on skyrocketing fuel prices like petrol and diesel.

Living frugally doesn't mean depriving yourself. It's about making smart choices and maximising your resources. Look for ways to reduce expenses without compromising on quality or your well-being.

[Read: Smart Financial Planning: Don't Risk Your Long-Term Goals to Meet Short-Term Expenses]

Step 2: Automate Your Savings:

You can make saving effortless by automating your deposits. Most banks and employers allow setting up automatic transfers from your salary account to your savings account or investments in worthy avenues like mutual funds, etc. Decide on a fixed amount that aligns with your budget and income, and watch your savings grow steadily over time.

Actionable Tips:

• Set up automatic transfers on payday: schedule a portion of your paycheck to be automatically transferred to your savings account.

• Increase contributions gradually: start with a small amount and gradually increase your contributions as your income grows.

Step 3: Build Contingency Fund:

Building a contingency fund is your financial safety net, a buffer against unexpected expenses that can throw your budget off track. In 2024, with economic uncertainty and rising costs, having a healthy contingency fund is more important than ever.

There's no one-size-fits-all answer, but a good rule of thumb is to aim for 6-12 months of your living expenses, including loan EMIs. This might seem like a lot, but remember, unexpected expenses can be costly and disruptive. Having enough saved can help you avoid taking on debt or dipping into your retirement savings.

Actionable Tips:

• Allocate a small portion on a periodic basis: It could be a wise choice to apportion a certain amount monthly or quarterly to your contingency funds based on your income and future needs.

• Review your emergency fund: As your income and expenses change, it's important to revisit your budget and adjust your savings goals accordingly. Make sure your contingency fund is keeping pace with your needs.

Step 4: Reduce Debt Burden

Debt can feel like a heavy weight on your shoulders, dragging down your savings goals and leaving you feeling stuck. But don't get discouraged! Reducing your debt and boosting your savings are achievable with effective debt management.

Actionable Tips:

• Track and Analyse Your Debt: Gather all your debt statements and create a list of each debt, including the balance, interest rate, and minimum payment. Organise them from highest to lowest interest rate; this will help you prioritise which debts to pay off first.

• Choose a repayment method: Avalanche Method - Focuses on paying off the debt with the highest interest rate first, regardless of the outstanding balance. Snowball Method - Pay off the debt with the smallest balance first, regardless of the interest rate.

Remember, reducing debt and boosting savings is a journey, not a sprint, so be patient and consistent.

Step 5: Utilise the Power of Compound Interest:

One may consider deploying their savings in wealth-creating avenues to beat the impact of inflation.

Time is your greatest ally when it comes to saving and investing. Start saving early and let compound interest work its magic. This phenomenon allows your invested money to earn interest on both the initial principal and the accumulated interest over time, exponentially increasing your wealth.

Actionable Tips:

• Invest wisely: Consider investing in stocks, bonds, or mutual funds for long-term growth opportunities. While these options come with inherent risks, the potential returns can significantly outpace traditional savings accounts over time.

The ideal investment option to benefit from the power of compounding is to invest in mutual funds via SIP mode. SIPs in mutual funds instil a regular savings habit, is lighter on your wallet, and you don't need to wait for a huge sum to begin your investment journey.

[Read: Begin with Minimum Investment in Mutual Funds And Watch Your Money Grow]

• Increase Your Contributions Regularly: As your income grows, gradually increase your savings and investment contributions. This fuels the compound interest engine and further amplifies wealth accumulation.

Remember, compound interest works its magic over time. Avoid short-term temptations to withdraw your funds. Stay disciplined and focused on your long-term financial goals.

Apart from this, increasing your income can significantly accelerate your savings journey. Look for ways to monetise your hobbies, skills, or talents. Consider freelancing, taking on a side hustle, or negotiating a raise at your current job. Every bit of additional income adds up and contributes to your savings goals.

To conclude...

Building wealth isn't a quick fix but a steady journey paved with smart choices and consistent effort. Implementing these strategies won't magically make you rich, but it will equip you with the tools and knowledge to navigate towards financial stability and growth.

Take control of your finances, embrace these tips, and let the power of these practical tips propel you towards a wealthier, more fulfilling 2024. Now is the perfect moment to begin your financial empowerment journey this year!

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.