In recent times, the Indian economy has faced significant challenges, including widespread layoffs and salary reductions, along with a notable increase in inflation rates. As a consequence, savings among households in the country have witnessed a sharp decline.
According to a recent report by Nuvama Institutional Equities, Indian household Net Financial Savings (NFS) have reached a three-decade low. The report reveals that in the first half of FY23, HH net financial savings dropped to approximately 4.0% of GDP, significantly lower than the 7.3% of GDP in FY22 and the 12.0% of GDP observed during the COVID-19 pandemic in FY21.
This decline in savings, for several reasons, indicates the pressing need for individuals and families to reassess their financial strategies and take proactive steps towards improving their saving habits in order to safeguard their financial well-being.
Build a safety net before budgeting expenses
Usually, as soon as the salary is credited, people tend to create a budget for the next month focusing on what expenses they are looking forward to. Try the other way around. As soon as your salary is credited, dedicate a certain amount to your savings and then take a look at the expenses. It is a great way to save for the rainy season first, as life is unpredictable and you never know when you will be needing that saving.
Simplify expense tracking and management with technology
Make sure you are taking advantage of technology by using applications or services that automatically round up your purchases to the nearest ₹and deposit the difference into a savings account. This makes saving effortless and allows you to accumulate funds over time.
Break free from the buy now, pay later cycle
Due to the ambitious goals and limited income of many young adults in India, they are increasingly relying on credit to fulfil their lifestyle needs. This change in consumer behaviour, combined with factors such as easy access to credit through services like Buy-Now-Pay-Later, Credit Card EMI options, and app-based loans, has resulted in a rapid increase in consumer debt in India.
Based on data from the Reserve Bank of India (RBI), household debt has reached 36% of the country's Gross Domestic Product (GDP). As of March 2021, the total debt held by households was approximately ₹43.5 trillion. This loop of buy now, pay later is injurious to your savings. Hence, as much as you can, try and gradually come out of this loop. You’ll eventually start seeing a change in your saving patterns. Rich Dad Poor Dad’s author Robert Kiyosaki also promotes the idea of never using credit cards.
Investing is saving
As Indians, we have seen our family using traditional forms of saving, including buying gold or setting aside money in fixed deposits, among other saving modes. This is a traditional form of saving and growing money. However, at this point in time, SIPs have become one of the greatest investing options.
Consider this scenario: If you are able to find an extra ₹2,000 each month and decide to invest it in an equity SIP, assuming a conservative average return of 12%, you could potentially accumulate a corpus of around ₹20 lakh over a 20-year period. This example serves as a reminder of the true value of small savings and encourages you not to underestimate their potential impact on your financial goals.
Align your family's financial approach for consistent success
Well, it’s time to sell this idea to your family as well! Make sure you all together smartly convert your expenses into savings. Explain to your children the need to start saving small amounts of money and how you can convert ₹2000 into ₹20 lakhs savings in the long term.
Harsh Chhatrapati, CEO of Galgal