Do Not Save What Is Left After Spending, Spend What Is Left After Saving

Publish Date: October 31, 2018

For many of the investors, Warren Buffett, the american business magnet, is a synonymous for “successful investing”. One of the most famous personal finance quotes by Warren Buffett is “Do not save what is left after spending, but spend what is left after saving”.

What it basically means is that you should always reserve your savings out of your earnings. And only from the balance that is left, you should plan your expenses. The quote and Warren Buffet have been ever since stressing on the importance of savings and inculcating it in your life as a good habit for long-term success.

So, what we must understand from the quote is that there should not be any place for overspending till the time we have enough savings to make our future secure. Savings at the right time and age will help you have enough funds during your retirement. Assured that you can continue to maintain your lifestyle. The earlier you learn to save, the better it is for your future. However, don’t just save, investing what you save is also a habit that will ensure a bright future. This could be deemed to be the first step of financial planning. Learn more about what is financial planning.

How to inculcate savings as a good habit?

So let us assume that with the salary you receive every month, you pay rent, utility bills, buy essentials and spend on other things to cover your basic needs. Now, what is left at the month end, goes into your savings. Most of the times, you end up spending everything and you are left with nothing to save. This is where most of us go wrong.

Let’s assume that you get your salary and then the first thing you do is either save or invest a particular amount. Say for example, you first invest in a mutual fund via systematic investment plan (SIP). Thus, you first save and then spend what is left. This will help you manage your finances well and cut down on wasteful expenses. Since you won’t have much to spend, you will automatically estimate your income and expenses for the month and cut down on your over-expenditure. Once you learn this art, things will seem to fall in place. This is known as paying yourself first and it works wonderfully for people who apply this principle in their life. It is an automatic way to prioritize your savings. Additionally, you can invest in tax-saving instruments that will fetch you high returns while giving you some room for spending on your luxaries. You could invest in a equity-linked saving scheme (ELSS) for saving taxes. Know more about what is ELSS.

So, next time when you get your salary, follow "pay yourself first" principle. First keep aside the savings component and then spend the remaining amount. This will ensure that you are saving money and building your net worth. In addition, it also helps you do a much better budgeting. If you want to start saving using SIP but don’t know how to, learn how to start SIP investment.

To sum up

Follow Warren Buffett’s timeless advice and make savings a priority from today onwards. It does not matter even if you save as small as Rs. 2,000 a month to start off. Getting into the habit of savings is of paramount importance.

Also, remember that the next logical step to saving is investing. There is a difference between financial planning and wealth management. Investing these savings in the right direction is again an art. You can seek help from renowned advisors like Kotak Securities, who can guide you on how to save and invest wisely to reap long-term benefits and achieve your financial goals. Save today and let your money grow.

Also read

• Calculate the future value of your monthly savings
• Understand what is Financial Planning
• Here’s how you can create your own financial plan
• Understand how much you need to invest to become a Crorepati