“Do not save what is left after spending; instead spend what is left after saving.”
― Warren Buffett
The actual formula to save should be:
Income – Savings = Expenses
but in most cases it is
Income – Expenses = Savings
Allocating income to expenses first may end up in 0 or lower than required savings.
Now why is it?
The reason is that the source of income is limited, but the ways to expend has become frequent and convenient. With the advent of no cost EMI, credit card easy repayments, personal loan facilities, people are expending too much and creating debt for themselves.
So now, even the formula has changed again to:
Income – Expenses – Debt = 0 or no savings at all.
This happens because the extra amount that you could have earned is eaten up by your debt (in the form repayment of EMIs, credit card bills etc). Now, why is saving at all required?
It is required for:
- Medical Emergencies
- Child’s higher education
- Family Vacation
- Retirement Fund
- Meeting Uncertainties
- Buying a New House etc
Well, the list goes on.
Having made you understand how important it is so save, let us help you with some tips and tricks which you can follow to boost your savings:
The 50/30/20 Rule
Budget is an important part of the saving plan.
Devising a budget can help you in prioritizing your expenses and finding the right balance between saving and spending. One of the best ways to allocate our savings, expenses and obligation is by 50/30/20 rule method. According to this rule, we should allocate: 50% on our needs, 30% on our wants and 20% on our savings.
Suppose our income is Rs. 20,000 then we should allocate:
- 10,000 on our needs
- 6,000 on our wants
- 2,000 on our needs
This 50/30/20 rule is a logical as well as easier tool to follow when devising your budget
The Envelope Method
The envelope method is another popular method when it comes to devising your budget. In this method you need to deposit a particular sum as per your budget into particular envelopes for a specific goal.
For example, if you allocating Rs. 10,000 for your shopping and Rs. 2000 for dining out.
Then you will put Rs. 10,000 in the envelope labelled as “Shopping” Rs. 2000 in the envelope labelled as “Dining”. By this method you will not able to spend more than what you have allocated at the beginning of the month.
Control Over Emotions
We all get tempted to buy something even when we go window shopping. These days’ credit cards, Paytm, net banking has made it very easier to spend money on the things we desire rather than needs.
Due to the facility of online shopping, these days many people when sitting idly at home open the shopping apps and incur unnecessary expenses.
Therefore, one should control their emotions and save for their future financial goals.
Using Financial Market Apps
If you find it difficult and do not have time to plan your financial goals, then you can take help of the financial apps which you can easily download from the play store of your smartphone.
There are financial goals based apps like Kredent Money, from where you can take assistance of how much you should save to attain a specific goal and in what investment tool.
The DIY Method
One of the best ways to cut your expenses is by doing some of the home tasks by yourself instead of appointing someone else for that task.
The method of “Do It Yourself” allows you to cut your expenses as well as motivate you in doing some of the home tasks by yourself. Suppose instead of appointing a gardener, you can take care of the plants at your home’s balcony by yourself.
This will help you to relax and also cut down your gardener’s expense.
Planning for Financial Goals
One of the best ways of saving is by setting a goal. This will give you a head start towards your savings. First, determine what you are saving for, that may be short term goals or long term goals. Short term goals include saving for buying a house, wedding or vacation.
Whereas long term goals include saving for retirement, children’s education etc. You can set a short term goal for fun like buying a cell phone or any other gadget which you desired for a long time, this will help you in starting the habit of savings.
Periodical Review of Expenses
Just devising a budget is not enough. After making a budget you should regularly track it and check your progress. See whether you are moving towards the achievement of your financial goals whether long term or short term goals.
We all know that saving money requires a lot of will power, control, sacrifices and attention toward your expenses. But once you start saving, then it will become easier for you to continue it for the rest of your life.