The 3 A's of Successful Saving| North Loop Official Blog
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25 Nov 2020

The 3 A's of Successful Saving

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Introduction -

One of the best ways to start saving money is to set a goal. Once you have done that, you can focus on the other three aspects that saving money is about - the amount you save, the accounts you save in and your asset mix. The most important among the three is the amount you save because no account or asset mix can make up for that. Let us now take a detailed look at the three steps required to develop good saving and money habits.

Amount -

If you have been wondering how to start saving money or when to begin, then let us tell you that according to experts, the sooner you begin, the better. The prerequisite to the best way to start saving money is to start saving in the first place. A lot has gotten said about the importance of saving money for retirement or developing healthy money habits. But not much attention is given to when you should begin and the amount that you should save.

Experts suggest that you should start as early as possible and consider saving at least 15% of your pre-tax income each year towards retirement. That can help you in maintaining your current lifestyle during your retirement years as well. In other words, saving money is about timing as much as it is about the amount and duration.

Creating a well-devised plan or strategy and working on it consistently, can help you save the right amount required for your retirement days or other long-term financial goals such as higher education, purchase of a house, etc. Also, when we talk about ways on how to start saving money, it must get mentioned that you need not save the same amount throughout your plan. Stepping up the amount as your income source and strength increases is a vital part of smart saving habits.

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Account -

Other than considering the amount you save, you should also pay attention to the account you save in. There are various types of bank accounts available in the market today, and each come with their set of tax implications. Depending on the type that you go for, your contributions towards your savings can either grow tax-deferred or tax-free. While most of them will not allow you to avoid taxes entirely, choosing the right account for your savings can help you generally reduce your total taxable income and in-turn lower your tax payments.

Asset mix -

You can choose your asset mix based on your financial goals and investment time horizon. If you are looking to invest for, let us say, a retirement that is still a few years down the line, you can opt for investments that give a higher return in the long run such as stocks and stock mutual funds. Stocks have always outperformed bonds and cash over the long term, and investing in such options can help you meet your future financial goals.

However, every investment comes with its associated risks. Therefore, before choosing your asset mix, it is best to consider several aspects like your risk profile or risk appetite, financial priorities and situation, investment preferences and time horizon. Experts suggest that as a general rule if you are an investor with a long term horizon, you can consider a broadly diversified exposure to stocks. However, if you are risk-averse, you can opt for safer financial instruments like fixed deposits etc.

The crux of the discussion is that how much your savings grow depends significantly on when you start saving, the amount you save, the account you save in and your asset mix. Also, it is crucial to remember that even though one strategy may work perfectly for a person, it can fall short for the other. Therefore, there is no substitute to creating a personal financial plan that not only focuses on factors on how to develop the habit of savings but also includes creating a well-rounded strategy that is best suitable for your financial goals.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.