Discipline is very important in every aspect of life. This cannot be more emphasised in the money management. The manner in which you manage your expenses is the key to reduce liabilities and save more.

According to a famous trading and investing legend, one must not spend time looking for the Holy Grail of investments or trading systems. It doesn’t exist. The Holy Grail is within you. It’s not the investment that’s going to determine success or failure rather it’s the discipline of the investor. Let’s explain through an illustration. There are two friends — Mr X and Mr Y, both in their late 20s.

Mr X has a monthly income of Rs 60,000, while Mr Y get a monthly salary of Rs 40,000. However, Mr X’s job is more stressful and demanding, while Mr Y has a comfortable job with low stress levels and better work-life balance. Mr X lives a lavish life. He spends most of his salary and saves inconsistently.

On the other hand, Mr Y is very regular with his savings. From his monthly income, he saves Rs 15,000 a month in the following manner: Rs 3,000 for pension; Rs 2,000 for child plan, Rs 4,000 for mutual funds, Rs 1,000 for emergency fund, Rs 1,000 for vacation fund, Rs 2,000 for PPF and Rs 2,000 for mediclaim.

Suppose at the age of 44 years, both have a medical emergency. Due to lack of savings, Mr X would be stumped. Mr Y would be able to save the day due to his savings. At an assumed six-per cent inflation per annum, Mr Y would need almost Rs 581,741 to finance his child’s MBA degree about 16 years later.

One can never predict life and it’s very difficult to anticipate bad times. Hence, it is essential to save for such rainy days. One should make it a habit to save, even if it's a small amount.

Here are some steps which one can follow.

Track expenses: This is the first step. You should keep a check on monthly expenses. Unnecessary expenses should be avoided. One way to know how much one has spent for a month is to have a monthly budget. This will show where the money is spent and also regulate the cash flows. Done over a period of time, this will help you identify areas where there is room to cut back on spending and save money. This will free up cash, which can be used to pay up existing debts or help save for the rainy day. Reducing spending, as opposed to earning more money, is the real key to gaining control of finances.

Also you must ensure that some money is set aside to cover monthly expenses for at least three months. These funds should be set aside such that can be readily acces-sed in emergency.

pay off debts or credit cards: Paying off your debts early is one of the best investments you can make, especially if you pay a high rate of interest. This includes the credit card payments, which generally have higher interest costs.

Create discipline: You need to have discipline in the way you spend and control your expenditure. It is the key to save. A consistent plan of saving and investment helps attain one’s goal. With discipline and time, one can reach goals.

Savings: What you earn is not as important as what you save. If you spend everything you earn in futile pursuits and wasteful expenditure, then there is no point to the amount earned.

invest early: Start the wealth building exercise by investing in low-risk investments. Once the base is strong, then increase the risk exposure by investing in higher return investments. Also, you should not put all the eggs in one basket. Your risk tolerance level goes a long way in defining your investment approach. However, do remember your investment objectives before you subscribe to an investment plan.

follow systematic plan: Invest at regular times. This will help you reduce the cost and earn higher returns in the long term.

(The author is CEO of BankBazaar.com)