Irrespective of our financial discipline, it is always a joy to be surprised by forgotten money
By: Sayantani Kar
Providence can be unusually kind to some. Take, for example, those who enviably come into money, unexpectedly left behind by a rich and distant uncle (or aunt). How would that feel? Wait, maybe if you multiplied your joy at suddenly finding some change in your trouser pocket by a trillion times, you would know?
Whether it is a trillion dollars or some ‘chillar’, finding unexpected money leaves even the dourest of us thrilled. So, what if we could turn this insight into a hack?
Saving is often drilled into us from our childhood as one of the basic financial virtues (‘not borrowing, ever’ being another). But when we are of age (to earn), spending money proves unexpectedly satisfying. New-found financial independence often gets aggrandised by the next new thing we end up buying.
If only our older selves could tell us it is such a long road, we might not get carried away. But until we invent time travel, what if we hide money away from our spending selves?
It would not mean we stop spending. But by craftily putting aside money from immediate access in our savings bank account, would mean we give ourselves some breathing space before the money goes poof on an impulse.
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Consider a secret bank account. We don’t mean the offshore kind used to hide ill-gotten riches. We are alluding to a harmless additional account that will be secret in the way we treat it, to store our hard-earned money.
We assign a bank account as the hideaway for money we absolutely don’t want to spend. This would not be our savings account which we access regularly. At studied intervals, we can move an amount to this account.
We would need to make it a point to not check it at all (except when we file income returns). A ‘secret’ bank account will work if we are pragmatic about the amount we put away. It won’t help if we are overzealous in transferring money to it, only to raid it later for spending. We have to leave just enough for rational spending with us. Only practice can provide us with the right estimate.
A bank’s recurring deposits or fixed deposits could also work as tools to keep some of our money out of reach. They would be more liquid than investments and less than bank accounts.
Those of us who work have an additional means of hiding away money. The Employee Provident Fund is a definitive way to create retirement benefits. Working in an organisation with over 20 employees, would mean both employee and employer already put away a part of the salary in the EPF. It earns well too, garnering interest of upwards of 8 percent.
While the employer’s contribution would remain at 12 percent of the basic pay (and is a part of our CTC but not on our salary slip), we can increase our contribution.
We get to take home a lower salary as we increase our Voluntary Provident Fund contribution. And voila, we would have squirreled away some more of our earnings for the ‘rainy days’. Money from the EPF can be withdrawn tax-free after five years of service.
Small savings schemes such as PPF and NPS also can make for safe parking of money we want to put out of sight. Both are less liquid than the EPF, though.
When it comes to our investments, it is easy to say our money is already hidden away from us (doing the hard work of earning more). But for the disciplined among us, we can find ways to be a little more austere even here.
Where possible, we can invest regularly, so that the money at hand is diligently put to work and not frittered away. There are mandates one can give automated advisers or financial advisers (for ETFs, for eg.), or even the automated SIP (MFs) way, which are capable of consistently taking away a part of our savings and investing it in the background.
If an investment matures or we cash out due to market conditions, let’s not spend it. Reinvesting it in a preplanned way will keep us from straying away from the savings theme.
Imagine all of these measures coming together and unbeknownst to us, piling up into an enviable corpus by itself. We won’t need a rich mysterious relative then.