HOW TO SAVE MONEY - 15 SIMPLE WAYS TO SAVE MONEY
Money doesn’t come easy, and what is more difficult is to manage it. Most of us have financial issues daily, whether it's a past-due bill or mountain of student loan.
Money is not everything, but money is something very important. Money helps us achieve our goals, basic needs, and supports. It helps us get some of life's intangibles - freedom or independence, the opportunity to make the most of our skills and talents, the ability to choose our own course in life, financial security. And on the other side, savings are looking pretty dismal.
At the end of last year, the personal savings interest rate in India, its lowest level in more than a decade that is 3.50% to 3.25%, but to make the most of your income and savings it's important to become Financially Literate.
There are plenty of methods to help you reach your money goals. Perhaps you don't even know where to start. Don't worry, we have you covered.
Here are the best practices and tips for personal finance, according to experts:
1. Track Your Spending
First things first. If you want to save more money and spend less of it, you have to know where that money is going in the first place.
Online budgeting tools like Mint, EveryDollar, or Money Manager make it easy to track your spending.
Having a visual snapshot of your money spendings can help in better planning. The snapshot is the answer to questions like:
Can I afford it? or
Is this purchase going to bring me closer to or push me further from my goals?
The 50/30/20 budgeting method offers a great framework.
According to this thumb rule:
50 percent of the earnings after tax should be used towards necessities such as rent, utilities, groceries, and transport.
30 percent of the money should be spent on luxuries, clothes, or wants/desires.
20 percent of the money should be saved and invested towards your financial goals such as paying down debt and saving both for retirement and for emergencies
2. Emergency Fund
An emergency fund is an essential amount that you must keep aside to tackle emergencies. So, you must design it specifically to meet unanticipated financial shortfalls that may apply to you.
You should be able to withdraw the money when you need it and with no delay. At the same time, you should ensure that you do not get penalized in the form of an exit load or pre-withdrawal penalty.
Now, the obvious question is How to build Emergency Fund?
Say, you have decided to have an emergency fund of Rs.1 lakh. In this case, you can set aside Rs.5,000 or Rs.10,000 every month to accumulate the corpus you need. You can even cut down on your investments to build this amount.
How much should your Emergency Fund have?
Depending on your expenses, an emergency fund can be three to six months of your monthly expenses. For example, if your monthly expenses are ₹40,000 then your emergency fund should have ₹1,20,000 to ₹2,40,000.
Building a stable savings corpus requires you to consider multiple factors like your take-home salary, monthly expenses, and some other factors. As expenses become increasingly complex, your savings plan needs to be refined.
We have created a simple emergency fund calculator for you. Use it and you will get some idea:
3. Pay off loans with the Snowball Method
If your goal is to finally get out of your loans this year, you're already on the right track - when you pay off your debts, you free up your money for financial goals. There are two basic strategies for kicking debt: pay off your highest-interest-rate loans first, or pay off your smaller balances first.
While the first makes more sense mathematically pay off your highest interest rate loans. This is called the "Snowball Method".
Let me share a snapshot of Ramesh's loans:
As the interest rates of credit card and unsecured loans are higher than the other loans, so, first complete the last loan: credit card or unsecured loan. Keep the payment of other loans at a minimum, meaning pay only the fixed EMI.
Be logical about how you approach your debts.
4. Pay Yourself First
Pay Yourself First concept says whenever money comes, you should immediately put a certain amount into an account that you will set later to meet a long or short term financial goals.