We hear a lot about the importance of savings from personal finance experts
and our elders. Big investors say how the discipline has helped in saving. One
of the big investors is Warren Buffet.
Before investor, he was a businessman who started several small businesses. He started selling coke cans, magazines, and gum from door to door. And saved those earnings. At age 14, he bought 40 acres of land from his ventures and rented that out for profit. He attributes this advice to his father, who was successful in accumulating wealth through savings. He believes that parents should talk to their kids about money management, as early as possible as it's an important life skill. Our parents usually teach us that saving money is the key to our future. They always tell us not to spend more than we make and to save to prepare for our future.
But how many of us know how to save properly?
Money-saving ideas can be challenging to come up with, but there are a few
easy ways to save money. In this Blog, we will talk about a few simple and easy
tips This will help you can save money, cut your expenses, reduce your bills,
and live a more comfortable life.
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Now, let’s come back to today’s topic on ways to save money.
1. Track spending.
Having insight into what you spend and where you spend is a critical step
in any personal finance journey. By tracking all of your expenses, you can
truly understand how much money you have and how much of it you have spent to
track this, there are easy-to-use apps available. You probably have an excel
spreadsheet. You need to create columns and categories for your expenses. And
on a day-to-day basis, you need to update your expenses. With discipline,
update all your expenses like rent, groceries, transportation, entertainment,
and holidays. If not, you can ask your parents (or elders) for help since they
might know better than you do.
2. Find ways to cut unnecessary expenses.
After tracking your spending, prioritize your expenses. You can divide them
into 3 parts- needs, wants, and things you don't need or want. You must be
thinking why the 3rd bucket is even needed? If I don't have any need or want,
then why would I spend on it? If you do this exercise for a few months, you will
know you spend on things that are not required.
For example, not paying credit card bills on time and paying interest. Similarly,
paying bills after the due date with a penalty. Your target should be to not
spend anything on bucket 3. Now let's talk about the bucket 2, wants, lakhs of
wishes in our hearts. It is very important to put preferences and priorities
filter our wants. It doesn't mean you forget your wants. It means that you need
to maintain a balance between financial security and enjoying life. Buying
things on impulse or delaying purchases is an effective way to spend less. Remember
to manage the temptation of sales. Remember that to avail 50% discount, you
need to spend 50%. And why spend on something which is not needed? So don't
forget to edit the list of wants.
3. Start budgeting.
A budget is a plan of how your expenses compare to your income to see which
expenses need to be cut and how much you need to save. It is always advised
that individuals can follow the 50/30/20 rule of saving. This rule says that
one can divide their income into 50% needs, 30% wants and 20% savings. But few
people say that spend on needs and savings first and then if something is left,
spend on wants. This is your personal choice. Remember to not cross your budget
and save with discipline.
4. When to start saving?
Well, it's now, however young, or old you are. The early you start saving,
the better returns you will get in the future. It's a myth that to save, you
need to have a big income. Consistent savings of even a small amount becomes a
big amount. When you start saving early, you will get compounding benefits and
feel financially independent. It is said that the more time you give,
compounding will give more benefits. If you are a teenager and reading this
blog, then you are in step 1 of saving. Don't stop now. If you are old and the
idea of savings has come later in life, you don't need to worry. Because every
person must start from somewhere.
5. It is important to set big things right.
The next step is to plan for big spending. It is important in life to not
make mistakes while spending on big-ticket items like houses and cars. Before
making this big spending, you should do deep research to get value for money. Try
avoiding overstretching financially. Do selection as per pre-decided budget. It
means fulfilling your big-ticket wants but within the comfort of your financial
position.
6. To set goals.
This motivates you to move forward. Before starting, setting goals is
better. If your goal is short term like an emergency fund or going on vacation,
then you can save for it. Generally, motivation for short-term goals comes
easily as we get benefits early. If your goal is long-term like buying a house
or retirement plan, then more effort is required to be motivated. The habit of
saving needs to be created. After setting goals and making a budget, your
savings will be systematic.
7. Talking to family.
Your family, either spouse or parents, and even children for that matter
can be a big part of your financial success. The key is to engage them in your
plans and align them to your goals and savings. Unfortunately, most people do
not talk to their families about their financial goals If family members are
not on the same page, a budget will never function. Have a discussion with all
the members in the house before you start crunching the figures for shared and
individual financial goals. Each family member must recognize and accept that
to build a budget that works for the entire family.
8. Pick the right financial instrument.
While saving is essential, deciding the right instrument to save is even
more crucial. Saving money is a good idea, but if you do not put it in the
right place, you could worsen your financial situation. There are financial
instruments like saving accounts, fixed deposits, bonds, stocks, gold, real
estate, etc., to save your money. If you have a long-term goal, you might
consider investing in the stock market or real estate. If you have a short-term
goal, you might consider a liquid mutual fund to save. So, your portfolio
should be made according to your financial goal. So, these were simple and
important steps to save money. So, this was today's blog.
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