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How to Save Money?

dateKnowledge Centre Team dateJuly 10, 2022 views224 Views
How to Save Money | Saving Money | Financial Planning

You may have a dream to buy your first house or your vacation home. You also have other unavoidable financial obligations like your child's education. To achieve your big financial goals, you have to start planning early. All of these require a large sum, and you may be worried about how to achieve it.

The good news is that you can achieve your wealth goals by making small contributions. There are only two things you need to do - make small contributions and keep doing it. You have to build a saving habit and invest the savings to achieve your goals.

Why is Saving Important?

You cannot underestimate the importance of saving in your financial journey. One of the best financial habits you can develop is to make regular savings. It can be tempting to spend money when it is credited to your bank account.

Benefits of Saving Money

However, you need to understand it will only satisfy your immediate wants. You need to save for the following reasons:

1. Financial Security:

Once you start saving, you can become financially secure - at an early age. Even if something unexpected happens, for example, a job loss, your savings can take care of expenses.

2. For Unexpected Expenses:

You will always be hit by an unexpected expense in life for which you were unprepared. It could be a higher utility bill, urgent home improvement, or expenses for car repair. With savings, you can take care of these additional expenses without taking a loan or having sleepless nights.

3. For Changes in Life Circumstances:

You will get married, have children, or move to a new house. For all these important life events, you need money. If you have savings, you can easily manage these events.

4. Early Retirement:

Today, many dreams of early retirement, and it is only possible if you start saving and do it early. Savings gives you the option to retire early.

Recommended Reading - How to Manage Money?

How to Save Money?

Once you understand the importance of savings, the next step is to start saving. Below are some ways to save and develop a savings habit:

1. Control Expenses:

There is no limit to wants. You can spend all the money you earn. To develop a savings habit, you will have to control your expenses. You should mark all your spending under needs and wants. Prioritize the needs and reduce the wants.

2. Save Whatever you can:

You may not be able to save a large sum as you may have just started earning or for other reasons. The key is to start saving. The amount, at the start, is not essential. Save whatever amount is possible for you.

3. Treat Every Purchase as an Investment:

When you make a purchase, see it as an investment and evaluate whether the investment is good or bad. If your investment will deliver negative returns in the future, you should avoid that purchase and put the money into savings.

4. Have Financial Goals:

You will need to have mid and long-term financial goals. These will keep you motivated to keep on saving month after month. Keep some short-term goals as well - once you achieve them and enjoy the reward, you will get a psychological boost to continue savings for other financial goals.

5. Make Saving Automatic:

If you want to save for a long time, you will have to automate your savings process. Choose when and how much you want to save and use the available tools to automate the process.

6. Reduce or Eliminate Debt:

Debt, especially the long-term one can drain your wealth gradually. So, if you wish to save more money, you can start reducing your long-term debts fast. Though the lenders don’t like it, repaying your debt early helps you get your savings back on track early.

7. Learn to Cook (Cook at Home):

You will not believe how high you can spend while eating out. Even with delivery, your per meal cost rises anywhere between 2 to 20 times of your home-cooked meal. That means you will spend Rs 6,000 to 60,000 from Rs 3-4000 a month. So, if you can have the ingredients and a kitchen at home, cooking your meals should be a priority.

8. Check Your Automatic Subscriptions:

Automatic subscriptions are a drag on your cards as they keep deducting small amounts before you can stop them. Check all such subscriptions on your cards and accounts and cancel the unnecessary ones.

9. Budget Long-Term Purchases:

Long-term purchases would be anything apart from groceries. Clothes, electronics, books, utensils, and furniture are all long-term purchases. You can park a small amount for each regularly. This will allow you to have an adequate budget over a few months to fulfil your needs.

10. Save the Bonus Before Spending:

Windfalls and bonuses are a good source to boost your wealth. So, when you receive such income, make sure to save a large part of it before you decide to spend.

11. Declutter Your House:

Discarding, selling, and donating unnecessary stuff from your home helps you declutter. While these activities will do little to improve your cash flow, it does help build your moral and social strength.

12. Refinance Expensive Debt:

Credit card debt, car loans, etc. are some of the costliest loans of all time. Credit cards can charge up to 3% p.m. as interest. So, you are better off not borrowing from your credit card unless you are certain of timely repayment. If you have a significant credit card debt, you can reduce the interest charge by turning it into a personal loan.

13. Lower Cell Phone, Cable, Internet Bills:

These multiple services in India often have overlapping benefits. For example, your post-paid mobile connection may give you access to DTH and OTT platforms along with the internet. At the same time, the separate fibre-net is also offering the same.

14. Save on Energy Bills:

Temperature control is one of the most expensive demands in homes, especially in urban areas. Installing outer layers to reduce heat loss or absorption will help you curtail your energy bills to a great extent.

How to Increase your Savings?

Once you start saving, you will have to look for ways to increase your savings. Below are some ways to help you increase your savings:

1. Start Investing:

Savings is like buying a car. If you only buy the car and keep it in your garage, it is of no use. You will have to drive it around to make the most of it - you need to invest the saved amount. The returns on your investment can boost your savings component.

2. Invest First, Spend Later:

If you look to save towards the end of your month, you will never have enough money to save. The right approach is to invest first and then spend what is remaining. If you are going over budget, bring down your expenses and not the savings.

3. Postpone Big-budget Purchases:

If you need to make big purchases and don't have the cash to buy them, delay the buying. It will help you figure out whether you really need the product. If the answer is no, you can avoid purchasing the product.

4. Avoid Borrowing for Buying:

Do not buy stuff on loans - when you are in debt, the savings components can never increase.

Where to Invest your Savings?

You should invest your savings in investment instruments to achieve different financial goals. Choose a financial instrument based on your risk profile and time of maturity.

Investments Why Choose? Investment Tenure
Fixed Deposits Invest in bank fixed deposits if you want to have guaranteed returns. Depending on your need, you can choose the tenure of your fixed deposit account. The interest you earn is added to your income and taxed as per your income slab. 7 days to 10 years
Mutual Funds You can invest your savings in different mutual funds like equity and debt as per your financial needs. Using a Systematic Investment Plan (SIP), you can invest every month in mutual funds. Few days to a few decades and above
Recurring Deposits You can make regular deposits in this savings plan, and on maturity, you get guaranteed returns. You will have the liberty to choose the period and the amount you want to invest. 6 months to 10 years
Unit Linked Investment Plan (ULIP) ULIP is not only an investment option but also comes with insurance. A part of your savings goes to insurance that secures the future of your loved ones and the remaining towards the investment bucket. 5 years and above
Public Provident Fund (PPF) If you are looking for a safe investment option, you can invest your savings in PPF. The amount can be deducted from your salary and is deposited directly into your PPF account. 15 years
National/New Pension Scheme (NPS) The best option for building a retirement corpus. You can save as much as you can from your income, i.e., no fixed amount investment. Automated portfolio management allows maximum benefit at minimum risk from the markets. Up to 60 years of age

Also Read - How to Invest Money?

Understanding the importance of savings is essential in today's time. It helps you with financial planning and gives you freedom. Savings allow you to focus on enjoying life and freedom from repayment schedules.

Once you develop the habit of saving, you create a prosperous future for yourself and your loved ones. Savings is the only proven road to financial prosperity in the world.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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