RAGS TO RICHES | Savings: A Gift from You to You

Rags to Riches is a monthly column published for the ArtNowThus Blog and Newsletter. Put together by Ragini with the help of experts, this column hopes to break down the journey to the coveted yet often-misunderstood concept of financial freedom. With stories, realistic examples and easy-to-follow steps, we hope that this column will gently build your confidence and help you take ownership of your earnings.

Written by Ragini Singh Khushwaha, founder of ArtNowThus and subject matter expert on the arts, media and content, cats, random factlets from around the world and productivity hacks.

With inputs from Sakina and Husein Merchant, Chartered Accountants who attempt to bring out their best selves by combining their professional skills and their love of being around and learning from other creators.

Up until quite recently, I’d always imagined that if I’m only spending what I make and never going over, I was a finance ace. And then a conversation with Husein gave me the incredible revelation: If I spend everything I make, I am effectively living paycheque to paycheque. Which as anyone who has ever read any financial advice piece can tell you, is definitely not a good thing. Financial Aces - 1, Ragini - 0.

Unfortunately, though it’s a situation I’ve heard about quite often; with my peers, with my colleagues. It’s also a situation I’ve found myself in frequently. Living on my entire paycheck each month could work fine for some months, but only until unexpected expenses or bigger spending goals show up. The minute there’s an emergency or if I simply need to buy a pair of noise-cancelling headphones in order to work when the neighbour’s renovating, I’m immediately spending money I do not have.

So while present me is comfy, future me is almost definitely living above her means.

There’s our problem identified. Now how do we fix it?

The answer of course is S-A-V-I-N-G-S

Saving just for savings’ sake is a great place to start at. You don’t have to save for a particular long-term goal or to pay back debt, or for any reason except to just save. It gives you a tidy sum of money that is slowly compounding in the long run and it’s building a handy little habit for a lifetime of financial wellness and security.

Let’s get you started!

STEP 1: Budgeting

Look through your budget and see where your spending lies - do you have any room to save each month or is your entire income being spent? If you need help putting together a budget, we’ve put down a whole blog post on this.

STEP 2: The Wiggle Room

Any money you have left over after all your expenses in a month, is the wiggle room. Don’t stress it if you don’t have any wiggle room in your budget at the start of this exercise. We’re going to help you figure it out with the Bucket System.

The Bucket System very simply is about allocating different proportions of your budget towards needs, wants and savings. The ideal way to split this up varies from source to source. But here is how I would recommend going about it.

A: Split

After you’ve looked through your budget, split your spending into two parts - expenses you cannot do without (i.e. needs) and expenses you could do without (i.e. wants). What expenses go into each column is entirely dependent on what matters to you. So yes you have your rent, electricity and groceries that are definite needs, but also what else is an absolute need expense for you without which life would just be meh. Go ahead and put that in.

Probably Relevant Side Note: I’m a big believer in keeping the things that bring me joy in my need column. I need to feel joy to live a happy and fulfilled life, so I see no way out of those expenses. Whether it’s going on holidays, having people over for a meal, going out for a night out and my contributions to charities - it’s important to me and so into the needs column it goes!

B: Assess

What percentage of your total income do your needs constitute? If it's at 50% of your income that’s honestly amazing. You’re already nailing personal finance, please come and join me in writing this column. My need expenses usually go up to about 70-75% of my income, and I’d say that’s pretty alright too (cue Madonna’s material girl here).

Honestly, most of us will find ourselves between 70-80% of our income (capitalism, how are we to be blamed!?) - and that’s still a fair place to land at. Obviously, if your needs are 100% of your income or higher than your income, then you need to relook the list. See what you could deprioritise and how much wiggle room that gives you.

C: Deprioritise

Start with a simple activity that perhaps feels excessive to you. When I started creating room in my budget for the wiggle (this is going to be a thing now), one of the first things I had no problem saying bye-bye to was trips to the salon. I hated the whole activity of it and I realised I was keeping it up only because I felt I had to in order to maintain appearances (quite literally, I suppose). Reducing the frequency of these trips, until I finally put an end to it entirely, has given me a few extra grand unspent in my budget each month. What are your ‘salon trip’ equivalents, what could you give up relatively easily? Once you have these and you’ve created some space in your budget, that’s a good enough start. The idea is to just begin now and grow as we go along.

Probably Relevant Side Note: This is a personal grouse, but the financial cost of personal upkeep and maintenance for women, if they are to look the way society expects them to, are astronomical. While there is a lot of ridicule around the cost of ‘vanity’ for women, there is a very real implication of not ‘looking the part’ as well. It impacts opportunities and pay raises for women in most jobs. So while cutting down beauty costs might seem like an easy enough decision, women are always going to pay far more on grooming than men. A fact that isn’t lost on economic opportunity with the invention of the very creative Pink Tax, where women are once again paying far more for the same products and the same upkeep as men.

Step 3: The Real Split

Once you have your wiggle room, the real fun starts. So buckle in, gang!

You’re now going the Split this amount into two separate sections.

A: The Emergency Fund (aka the Sh*t-Hit-the-Fan fund)

This is literally your first priority when you begin your savings journey - set aside half of your wiggle room towards building a fund you can tap into in case of an unforeseen expense i.e. a personal emergency fund. Ideally aim to have 3-6 months of expenses within this. The easiest way to set this amount aside is to put it into a liquid fund. Liquid funds offer returns that are comparable to what the money would earn in a regular savings account as interest. It’s a great way to organise money that needs to be set aside for a short period and keep it accessible, and yet prevent it from being spent.

If you have a hard time saving money, successfully managing to create an emergency fund will completely change your relationship with money. It gives you the security of having a financial safety net now, as well as the sense of achievement from having hit a major financial goal.

Once that feeling sets in, you’re pretty much addicted to keeping it going!

B: Invest Invest Invest!

The other half gets saved and put towards investments, both long-term and short-term. Set aside a portion that goes into long-term investments that are parked for 3-5 years on the minimum. The higher you go on these, the better. Compound interest is your best friend. So my recommendation always would be to put as much towards this as you possibly can. Basically, if you have short-term money goals, set a portion aside towards this. Whether it’s a car, a holiday or that sick new haircut - just squirrel away the cash and when you have the amount on hand, you can splurge it all knowing that your main nest egg is sitting safe and sound in your long-term investments. A few years down the line, that little wiggle room is up a whole shoe size! Give it a bit longer and you’re basically calling in favours with Bigfoot now! (dropping the (toe) wiggle analogies now).

We’ve covered investing in much more detail in our next edition of Rags to Riches, so check it out right here.

The wiggle room is basically just a portion of your hard-earned money that you set aside for yourself to use at a later date, whenever that may be. Honestly, I can’t think of a better use of anyone’s money - spend it on yourself, but later :)

If you need further help building out a wealth management plan for yourself, reach out to Husein and Sakina at hello@yourstash.in, and they can take you miles ahead on your journey to financial health and freedom.

The Big Fine Print:

We’d like to establish that while the principles outlined in this section should pertain to anyone, we’ve put this together with a focus on creative professionals and freelance workers. Also, while we do have Husein and Sakina consulting with us on this column and keeping us straight, we’re not financial advisors. This column is for informational and recreational purposes only and in no way meant to offer advice or recommendations.