Beginning of December 2006 a client of mine called to say that she would skip her December 06 and January 07 investments. She invests fixed amount every month over and above SIP.

As planners, we always insists on clients committing fixed amount, however in many cases if income is not very stable than we recommend smaller SIP commitment and additional purchase every month depending on cash flow.

She wanted to skip investments, as she wanted those funds to go for vacation. According to her, she and her husband had had very hard working year and hence it was "necessary" for them to unwind before New Year begins.

This is not new experience. In September this year another client wanted to redeem part of his funds from his retirement savings. Funds were needed to celebrate daughter's birthday party.

Since he was investing through SIP in diversified equity fund for his retirement - which is 12 years away - he thought it is all right to redeem funds temporarily and replenish later. Daughter was turning 18 and hence it was "necessary" to celebrate.

There has also been an instance where couple wanted to completely delay their savings, as it was necessary for them to buy a bigger car this year. Husband had got a new job and higher designation. All his juniors were using cars, which were bigger than his, and hence it was "necessary" that he upgraded his car.

Let's get this thing clear, if going on vacation, celebrating birthdays or eating out are necessities then so is saving and investing. I repeat - "Saving and investing are necessities"

Only small part of what we earn is ours. Major portion of our earnings will go away in taxes, routine household expenses, EMIs etc. Well known author Robert Kiyosaki in his famous book "Rich Dad, Poor Dad' writes about "paying yourself first." Form our income; we should set aside money first for ourselves by way of saving and investing. Once we have paid ourselves we can consider paying others i.e, spending.

Best principle to follow is Earn - Save - Spend. From our earning, we should set aside fixed amount towards savings and investing. Whatever is left after savings and investing, should be spent. Invariably we tweak the order.

We Earn - Spend - Save. From our earnings we spend first and than whatever little is left is saved. Going further in an era of credit-cards and consumer loans we will spend first and than earn. There will hardly be any scope left for savings as most of the time we would be trying to complete our EMIs.

If we haven't had the habit of saving all our life than we should begin with recurring deposit in a bank. Over a period of time move to mutual funds and start systematic investment plans. Based on our financial goals choose from variety of mutual fund.

For near term consider cash/money market funds. For short term choose debt funds and for a longer period of time - 7/9 years - choose equity based funds. Over a period of time we will also have Gold based funds. This will allow us to invest in gold without having to physically hold gold.

In the end remember, "It's not your salary that makes you rich, it's your spending and saving habits".

The author is a Certified Financial Planner. He may be reached at gmashruwala@gmail.com

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