The Seven Habits Of Highly Successful Long-Term Savers

That we are by and large, a nation of 'savings-oriented' people is no secret. Per World Bank Data  our country's Savings to GDP Ratio stood at 29.8 per cent for 2015, implying that for every Rs. 100 of GDP, Rs. 29.8 was channelized into household savings. In the year 1966, this stood at 14 per cent. To put this number in perspective, the Savings to GDP Ratio for the US is 17.5 per cent, and 15.5 per cent for the United Kingdom. Macao SAR stands out as the surprising winner here, with a ratio as high as 64.8 per cent! Nevertheless, we're doing quite well on the savings front, collectively speaking.

One would think, then, that with a better than average Savings to GDP Ratio, we're well equipped to stride confidently into the future, wallets bulging. Unfortunately, that isn't quite the case. Despite packing away adequate sums of money each month, most of us are in fact, unsmart long-term savers. Here are the seven habits of those who are geared to create serious wealth from their long-term savings.

They are Aggressive
While traditionally, Indian savers are conservative in their approach to long-term savings - preferring to channelize their moneys into life insurance, deposits and PPF, successful savers choose to go against the grain and be aggressive instead. The fact that the Mutual Fund industry SIP book has risen from 75 lakhs to 1.25 crores in the past five years is testimony to the fact that more of us are accepting the fact that long-term conservatism is a surefire way to compromise on our future goals.

They understand Inflation
Unsuccessful savers remain blissfully oblivious to how inflation is going to impact their financial futures. Thus, they are swayed by advertisements of financial instruments that promise a guaranteed return or monthly cash flow, several years down the line. Even worse, these savers often carry this tendency forward into their retired years, opting for products such as annuities that provide the same monthly cash flow for extended periods of time. Before you commit to a financial instrument that promises you Rs. 50,000 per month starting 2042, remember that Rs. 50,000 then will likely be worth just Rs. 10,000 in todays' terms!

They are lazy
Yes, you heard that right. The most successful long-term savers are in fact, passive and lazy. They do not succumb to the 'action bias'- or the innate tendency to constantly shift their investments around and 'do stuff' with their portfolios. As a result, successful savers are able to stay put when markets wreak havoc, or when an unscrupulous Adviser aims to churn their money in and out of funds for no good reason.

They go beyond the comfort of fixed return
Admittedly, the comfort of a fixed or guaranteed return is alluring. However, guaranteed returns are usually not inflation matching, leave alone inflation beating. Take the example of an individual who saves Rs. 10,000 per month for 20 years in a recurring deposit, at an average post-tax return of 6% per annum. Having saved Rs. 30 lakhs out of his pocket, he would be sitting on a fund value of Rs. 70 lakhs in 2042. Assuming an average (optimistic) inflation rate of 5% during the length of this period, the real returns earned by the client would be a mere Rs. 10 lakhs over two and a half decades. Had the same investor opted for a more aggressive instrument that would have fetched him a 12% return, his final corpus would be closer to 1.87 crores.

They seek out 'pure' investments
Successful savers separate each aspect of their personal finances, and seek out distinct solutions to each problem at hand. For instance, you'll likely not find a host of insurance policies that add very little value in terms of actual death benefit, in the portfolio of such an investor. Rather than opting for 'combo' or bundled financial products that aim to solve two problems at once, successful savers opt for products such as term insurance and Mutual Funds SIP's instead.

They are regular and disciplined
We tend to be regular and disciplined with our car and home loan EMI's, but less so with our recurring savings. Successful savers approach this differently, according as much (or more) significance to their recurring savings as they do to their EMI's. Franklin Templeton Mutual Fund captured the ethos of this principle wonderfully in their recent campaign where they propounded that a "SIP is like a Good EMI". An annual step up in savings, in line with increases in surplus, is another characteristic of the successful saver. In other words, they are more resilient to the 'lifestyle creep' phenomenon - if they save 10% of their income today and their monthly income goes up by Rs. 20,000, they step up their monthly savings by Rs. 2,000 immediately. Additionally, they strictly avoid drawing upon their long-term savings for funding short term wants.

They start from where they are now
Instead of waiting indefinitely for their surpluses to become large enough to warrant a 'significant' investment, successful savers start from where they are now - even if it's as low as Rs. 500 per month. They understand that when it comes to creating wealth over the long-term, well begun is half done. Savings, like most other things, is a habit after all.