Much of the discourse in the personal finance space is on investing. But the question is how will you invest if don't save enough? Regular savings is part of our culture. But in today’s age, the culture of savings took a beating due to rising cost of living, improved lifestyle and consumerism. In this article, we will discuss some golden savings tips that can help you without compromising your lifestyle.
Prepare a monthly budget
Preparing a monthly budget is half the battle won. When you prepare your monthly budget, set aside funds for essential expenses like food, rent, utility bills, transportation costs, children’s school fees, insurance premiums, home loan EMIs. The balance is discretionary spending. You should try to minimize your discretionary expenses and maximize your savings. How to do that? Sit down with your monthly bank or credit card statement, and study your spending habits. You should question all material expenses and eliminate them wherever possible. Alternatively set yourself a savings target and stick to it assiduously.
Plan your purchase
Our parents used to have a shopping list, whenever they went for grocery shopping? The shopping list is of great value if you are trying to minimize your spending especially when you are shopping in a supermarket. Without a shopping list, you are likely to buy any item that catches your fancy, as you amble down the aisles in your supermarket. The ambiance and product placements in supermarkets are designed to make you spend more and feel good about it. Smart product placement often makes you spend more. The most expensive brands are kept at the eye level and the less expensive brands are kept in the upper or lower shelves. Naturally, the most expensive brands will catch your attention and make you buy it. If you have a shopping list, you will buy only the items that you need and leave.
Debt comes in many forms such as credit cards, buying expensive items in equated monthly installments. Use your debit card instead of a credit card for your purchases. If you use credit cards, you should ensure that you pay the full amount due on a monthly basis. You should avoid EMI payment schemes for your purchases. You should wait till you have saved enough to purchase it by paying the full amount or opt for a lesser priced product. You should not be enticed by promotions like “zero interest” EMIs for the purchase of certain items.
Be patient when buying expensive gadgets
Before buying an expensive smartphone or latest tablet, ask yourself 'do I need this'? When it comes to buying electronic gadgets, people are often led by “herd mentality”. You should remember that smart savers are never influenced by peer group.
Shopping online can get you large discounts and help you save more. Why is online shopping cheaper. Always compare prices of the same item on different websites before purchasing to get the best deal. Different online shopping sites run different promotions and chances are you can get a better deal if you explore multiple options. Always check the shipping charges before placing your final order. Always check for SSL encryption when using your credit card for online purchases. SSL encryption is depicted by the icon of a padlock on the address bar.
Park your savings in liquid funds
You should consider liquid funds as an alternative to the savings banks. While having an emergency fund parked in a savings bank is essential from a financial planning perspective, if you can wait for a day to withdraw the funds, liquid funds are an excellent alternative to your savings bank account. While savings bank interest is usually around 4%, liquid funds provide returns in the region of 6 – 7%. The extra income is useful from a long term perspective because you can re-invest it in high yielding assets like equities and earn higher returns over a long time horizon. While liquid funds are subject to market risks, nature underlying instruments in a liquid fund ensures safety.
Start investing systematically
How is systematic investing a savings tip? It is, in fact, one of the best savings tips. It forces you to save more, by leaving a smaller surplus in your bank for discretionary spending. After a careful analysis of your expense, you should prepare your monthly budget as discussed earlier and set yourself a savings target. Based on your savings target, you should start a monthly systematic investment plan and set up an ECS with your bank account at the start of every month. With a systematic investment plan over a long time horizon, you will benefit from the power of compounding of your investment returns and create wealth. (The author is head of Money Mantra, a Mumbai-based financial advisory firm. He can be reached at email@example.com)