Improve Savings & Let the Piggy Bank Overflow!

Most of us think that a plan to improve our savings, making and watching our budget means cutting down all the fun, living a very simple life. This might be partially true, however if you plan well and plan early you can save, increase your savings and eventually increase your expenses too!! Too good to be true? Don’t believe? Keep reading…

Physical Savings

Actually setting aside money from your pay check, pre-tax contributions to your savings (Sec.80 C of Income Tax – Government bonds, PPF, life insurance premiums etc.), fixed deposits and all other regular methods that you use. It is the actions that you take, the efforts that you make.

Psychological Savings

First start believing that you can save. Next write down your goals very clearly. Note down what you are saving for – a particular event in future, a trip, education or wedding, retirement or emergencies, with a time frame. Make mini goals, each year, each month to make your goal concrete. Make sure it is a realistic and achievable one. Do not aim to save Rs.1 million in 5 years where you are barely able to chip in Rs.5,000 per month. This step is of utmost importance as physically everybody tries, however if we do not believe and are not clear we lose focus and our efforts and energies are not concentrated.

Three ways to increase savings

• Increase in actual earnings and hence an increase in savings, e.g. promotion. Additional income coming from a side business, can be totally directed towards savings. This method does not require conscious effort, it is more circumstantial and would naturally be adopted by you.
• Cost Savings – This is the most important area and very simple to achieve, when there is no change in other factors influencing your financial position. Start noting all your expenses and make small cuts in every area. You will be amazed at how much this will contribute to your savings. You don’t need increased income, some cost cutting ideas are mentioned below.
• Earnings on your savings – This is a difficult one. Whatever little that you have saved if it is correctly invested, it can earn the maximum return , which you can add to your savings / reinvest and it will grow in multiples. For e.g. If you have Rs.10000 in FD at 9% p.a. it will earn Rs. 900 so for next year your saving is Rs10,900. Whereas if the same is invested in a Rs. 5000 FD at 9% p.a. (Rs. 450) and Rs. 5000 in a Mutual Fund at 11% p.a. (Rs.550), next year you would have Rs. 11000. Based on your risk appetite invest in a mix of fixed deposit for contingency, short to midterm bonds, funds for near future and equity, real estate for long term goals. A lot of study and proper guidance is required to invest optimally and that knowledge can be gained by taking small steps and keeping up with the markets.

How do you cut down your costs / expenses?

1. Want it or Need it? – Start distinguishing between your wants and needs. A lot of times when we go for shopping we end up buying things that we don’t need and sometimes even things that we don’t want. Two pairs of shoes are needed but five pairs; maybe not. Buy groceries that you eat, not that rot in your in your refrigerator. Stay away from impulsive buying during discount season.
2. Look for alternatives – See if you can buy a cheaper product or service. See if you can buy it online instead of your regular grocery store to save a couple hundred. Look for discounts, offers which are common these days, plan your purchase in advance so you can avail of such offers.
3. Save on Utilities – Develop a healthy habit of saving electricity, water …it will have a positive impact on your wallet and on the natural surroundings. Cut down that telephone call to 10 minutes instead of 15. Turn of the TV and practice a hobby instead.
4. Start walking – We always say we don’t have time to exercise so do it the natural way. Walk wherever you can, to save on travel costs, plan ahead so you have enough time. Use public transport trust me it gives you good physical exercise. Share rides and contribute to a greener environment.
5. Be on time – Avoid paying late fees on dues and bills, get early bird benefits. Drive carefully and sensibly to save those traffic penalties, parking penalties.
6. Practice a paid hobby – Do something that you love in your free time. If it can relax you and give you some money all the more better. For e.g. take a cooking class or be a guest lecturer on your favourite subject, dance or music anything.
7. Use OLX and QUIKR – No matter how much you try you will always end up with a lot of extra, worthless items lying around your house, SELL them. Keep a rule things not used in past year or two or may be five are probably extra and you don’t need them.
8. Creative Gifting – Use some wastes and make the best out of it. Prepare a handmade card, the receiver will love the personal touch and you will love your pennies.
9. Be healthy – Invest in activities that help you remain healthy, cook your own food, exercise, be happy you will save a lot on medical bills.
10. Don’t borrow – Borrowing increases the cost of the product or service you buy, factoring in the interest payments. So avoid debts to fund your lifestyle. On the other hand make a note that a sensible car loan or a home loan would help you build an asset and increase savings in the long run, so leverage such opportunities.

Most of the above are obvious and small steps but difficult to consistently follow. The list can go on as you keep a track of each of your expense. Just set aside each saving from these small efforts and see your fortune grow. Don’t be bogged down, just take the first step and you will succeed!