Are you a spendthrift? Does your salary seem to vanish without you realizing what you spent the money on? If yes, then chances are that you aren’t managing your finances properly.
Saving doesn’t just mean getting discounts on your purchases. It also means putting away money for a rainy day and pretending you never saw it; creating an emergency fund so that if something does go wrong, you won’t be sick with worry; wiping out debt once and for all; paying off those bills that never seem to go away; and, eventually, it means putting your money to work for you.[break]
Keshab Thoker
Saving money is one of those tasks that are so much easier said than done. There’s more to it than spending less money (although that part alone can be challenging). How much money will you save, where will you put it, and how can you make sure it stays there?
There are three core principles on how to save money and build wealth. The Week tells you how to set realistic goals, how to keep your spending in check, and how to get the most for your money.
Set savings goals
For short-term goals, this is easy. If you want to buy a new phone, find out how much it costs; if you want to buy a flat, determine how much of a down payment you’ll need. For long-term goals, such as your children’s tuition fees and retirement, you’ll need to do a lot more planning and you’ll also need to figure out how investments will help you achieve your goals.
“I recently bought a Mac Book Pro with money I had put aside for it. I started saving a quarter of my salary each month and in less than a year, I got my dream gadget,” says Surakshya Dhungana, 29, creative director of an advertising agency, adding that once you figure out how much you need to save in order to buy something, it’s not really that difficult to do it.
“You should never ever spend all your salary. As soon as you get it, set aside a fixed amount each month and make sure you don’t touch this money unless it’s an emergency,” says Surakshya.
Keep a record of your expenses
“When you keep a track of your expenses, you come to realize how mindlessly you’re spending money and it becomes easier to curb your spending habit,” says Priya KC, 31, a teacher who has managed to save enough to buy the new Google Nexus tablet by just cutting back on petty expenses.
“I didn’t realize I was spending a small fortune on cosmetics that I really didn’t need and things I could do without, like new mugs and knick knacks,” she says, adding when she started noting down her expenses, she came to the stark realization that so much money was being wasted.
It’s wise to take a critical look at your expenses if you want to start saving. Write down everything you spend your money on for a couple weeks or a month. Be as detailed as possible, and try not to leave out small purchases. Assign each purchase or expenditure a category such as Rent, Phone Bill, Gas, Food, Entertainment, etc.
“When I added up my little purchases, it amounted to quite a bit. Now, by keeping a record of my spending, I’ve managed to save a lot of money,” says Priya.
Take a good, hard look at your spending records after a month or two have passed. You’ll probably be surprised when you look back at your record of expenses, and you’ll likely see some obvious cuts you can make. Depending on how much you need to save, however, you may need to make some difficult decisions. Think about your priorities, and make cuts you can live with. Calculate how much those cuts will save you per year, and you’ll be much more motivated to pinch even petty paisas.
Open a different savings account
It’s a lot easier to keep track of your savings if you have them separate from your spending money. Open a separate account for your savings and don’t get a debit card for it. When you have a debit card to carry around for the account, you’ll most likely spend the money on impulsive buys because you know you have the required cash set aside. So the best way to nip the temptation will definitely be not to apply for a debit card. This way, your savings are safe and out of reach as well.
You can also usually get better interest on savings accounts than on current accounts. You can also opt to invest in fixed deposits where the interest rates are higher.
Rabi Adhikari, 33, a banker, has managed to save enough money to feel secure about his future by just keeping his savings separate from his spending money.
“When you know how much money you have in the bank and especially if you carry your ATM or debit card, you’re much more likely to spend it when the urge hits,” says Rabi who deposits half his salary in a separate savings account each month.
He says that depositing a portion of your paycheck into a savings account or arranging monthly transfers from your salary account to your savings account is the easiest way to get into a routine that adds to your final balance.
“It works wonders. I can vouch for it,” says Rabi.
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