If you find saving money virtually impossible, what with the flurry of expenses that announce their arrival at the start of each month, this guide is for you.
If you find saving money virtually impossible, what with the flurry of expenses that announce their arrival at the start of each month, this guide is for you. Saving need not be an impossible task if you have a sound financial plan. By following a few rules, inculcating the habit of saving and reducing expenses gets easier. Here is a set of financial guidelines to live by.
Identify your needs and wants
While you need to buy your parents a gift for their 50th anniversary celebration, you don’t need to purchase a new car for them even though you may want to. Distinguish between your needs and wants by segregating them based on the urgency and impact. Ask yourself if you can hold off on your purchase until the next sale. Remember you will always have unlimited wants, but a limited number of needs that can be catered to by your monthly budget.
Do not postpone saving plans
Even though the next month may seem like the ideal time to start a new fixed deposit, recurring deposit or mutual fund investment, don’t procrastinate. Combat the urge to spend by setting automatic transfers. Similarly, if you are putting off an investment in mutual funds that can yield high returns because of an insufficient corpus at your disposal, invest in an SIP instead. This way you can invest in instalments instead of a lump sum. Once you have enforced a savings habit, following the pattern religiously each month will only get easier. Additionally, investing part of your savings can help you combat the adverse effect of inflation.
Use financial goals
An essential part of saving and investing successfully is setting financial goals. With a written down plan, you are much more likely to achieve your goals. Well-planned goals are a reminder of your priorities and constantly inspire you to make more prudent choices. With financial goals to pave the way, you can follow an easy path to providing for your needs while also maintaining your financial wellbeing. For example, if you want to buy a car in the next five years, start saving and investing now. Check the prices of current models, account for any rise in price, and forecast the amount you need. Then predict your returns from investments and invest smart to achieve your target.
Don’t give in to spending pressure
Sales are often hard to resist and advertising is only getting easier to relate to. With festive offers and holiday schemes, turning down a flat 15% off scheme suddenly seems impossible. Rather than letting FOMO (the fear of missing out) be your beacon, let your goals be your lighthouse. This way, you will think again before you swipe your card or simply ape your peers.
Set limits on fun activities
Even though you must enjoy a part of your earnings, balance your fun activities with savings. Limit your visit to the neighbourhood discotheque or replace the weekend ritual of ordering in and opt for fun but easy recipes that you can cook in your kitchen with your family. Having a budget in place for all your fun activities will help you enjoy and curtail expenses simultaneously.
Reduce your expenses
Take the time to review your expenses once every quarter. In order for this to really work, you need to be ruthless and maintain an account of your expenses. Seeing the amount of money you are spending on frivolous things will deter you from making the same mistakes in the future. You may even come up with better solutions like carpooling with your friends instead of driving yourself to work every day that will help you build your savings!
The writer is CEO, BankBazaar.com