Indians have always been proud of their ability to save money. This country has a rich history of people saving money for the use of their future generations. One need not go very far away from home to understand the significance of saving. The examples are available right in our homes. We have seen how our earlier generation has saved for us while we do the same for our children. However, of late, savings has taken a backseat, with the younger generation preferring to spend rather than save. Nevertheless, saving money is paramount. We shall discuss the importance of savings and share five tips for saving money. But before that, let us understand what savings are.
Savings – The Definition
The Encyclopedia Britannica defines saving as ‘setting aside a portion of current income for future use.’ It further adds that savings can be in the form of bank deposits, increased cash holdings, purchase of securities, etc. We shall expand on this definition and understand savings from different perspectives.
We shall see different interpretations of savings.
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So, we can deduce that any action that increases disposable income or reduces your expenditure is savings.
So, now we proceed to answer the question, ‘How can I save money?’ But, first, we shall discuss five critical tips to help you save money.
Track your expenses
We have seen that the excess of income over your expenses allows you to save. So, any increase in your income or reduction in your expenses provides you with opportunities to save. Increasing your income is not entirely in your hands, but reducing your expenses is. Therefore, tracking your expenditure becomes critical.
The trick to tracking your expenses is bifurcating your expenses into needs and wants. Your needs are compulsory expenses you cannot do without. However, your wants constitute discretionary expenditure that can be curtailed.
Money tracking apps are available that can help you to track your expenses. Apps like Money View, Good Budget, Monefy, etc., enable you to monitor and track your expenses. You can transport the files to an MS Excel document and monitor your account offline. Tracking your expenses is the right save money fast.
Pay your bills on time.
You have already bifurcated your expenses into needs and wants. Your utility bills, taxes, and credit card bills fall under the needs column. Paying these bills on time is critical because you incur late payment penalties and charges if you do not do so on time.
For example, you have to pay your power bills before the due date. Otherwise, the electricity company will snap your power connection. Besides, they might include a late payment fee in the next month’s bill. So, you would end up paying more than you should have. Thus, paying your utility bill on time is an indirect saving.
Another example is the payment of credit card bills. Credit cards are unique instruments that help you save money if you use them properly. Every credit card has a fixed bill generation date. Usually, the bill payment date is 15 to 20 days from the bill generation date.
Suppose your bill generation date is the 15th of the month, and the payment due date is the 30th. You should pay the entire bill before the 30th to benefit from the interest-free period. If you fail to pay the whole bill, each item on the bill attracts interest at the contracted rate (usually 3% per month). Besides, every subsequent purchase is also charged interest at the same rate. That can drain your income substantially.
Not paying your credit card outstanding bills on time can add a recurring expense to your expenditure column. You can easily avoid this expenditure and thus, increase your savings. You can download apps like the Cred app that notify you whenever the credit card bills are due. Using this app to pay your credit card outstanding amounts enables you to earn attractive cashback and bounty rewards. They can add to your savings.
Use your discounts wisely.
Taking advantage of your discounts is how to start saving money the right way. Generally, you use payment apps like G-Pay, Phone Pe, Amazon Pay, etc., to make miscellaneous payments for your needs. The benefit of using these apps is that they allow you to do so seamlessly. Besides, these apps offer exciting cashback on using them for your payments. In addition, these apps dole out discount coupons that you can use and save money.
If you use discounts wisely, you will pay less for the product than what you would have under normal circumstances. In addition, it leaves you with surplus funds for other payments. You can thus save substantially by using discount coupons.
You can use grocery apps like Grofers, Big Basket, Swiggy Instamart, Zepto, or Reliance Jio Mart to order your groceries online. Besides delivering groceries at your doorstep, these apps offer exciting discounts on the products. Secondly, cashback is also available that you can adjust with other orders.
However, discount coupons can tempt you to instantly purchase items that you might not need. Therefore, it is better to be careful when redeeming discount coupons.
You can order food through apps like Swiggy and Zomato instead of visiting the restaurant. Of course, the menu could be a bit costlier on these apps than the restaurant, but you get discounts that can offset the price difference. Besides, you can dine in the comfort of your home.
Similarly, you can use travel apps like Ola and Uber for your local conveyance needs rather than relying on private taxis and autorickshaws.
You receive reward points for using your credit and debit cards. These reward points can be redeemed for excellent discounts on travel tickets, hotel bookings, and other expenses. Using these discounts wisely can help save sufficient money.
Pay loan installments on time and close your loans early.
Today loans are available for almost every purpose. For example, home loans let you purchase houses, whereas auto loans are ideal for buying cars or motorcycles. When scouting for your loan, you should do your homework well and opt for the loan facility that offers the lowest interest rate. Remember, your home loans are long-term commitments that could extend up to 30 years. Therefore, a difference of 0.5% can result in tremendous savings over the loan tenure.
For example, you are looking for a home loan of Rs 40 lakhs at 7% for 30 years from Bank A. At the same time, a peer Bank B offers a similar loan at 6.5%. Initially, the difference of 0.5% does not seem substantial.
The EMI of Bank A is Rs 26,612, and the total repayment commitment for 30 years would be Rs 95.80 lakhs.
On the other hand, the EMI of Bank B would be Rs 25,283, with a total repayment of Rs 91.01 lakhs.
Thus, opting for the Bank B loan saves you nearly Rs 1,300 in EMI and Rs 4.80 lakhs over the entire loan tenure.
You can save more money by opting for a shorter repayment tenure. For example, if you reduce your repayment tenure by five years, your EMI with Bank B will be Rs 27,008. The total repayment would be Rs 81.02 lakhs. Thus, you save nearly Rs 10 lakhs over the entire loan tenure. However, your monthly commitment increases by Rs 1,800.
We have seen how a 0.5% difference in the interest rate results in massive savings. However, repaying the installments on time is crucial. Banks charge high penalties on delayed installments. Besides, banks charge penal interest on defaulted installments. All these bank charges drain your savings substantially. So, repaying your loan installments on time is one way save money.
Have a contingency plan.
One of the best savings instruments is your life insurance because life is uncertain today. Should anything befall the family’s breadwinner, the entire family is pushed into debt and poverty. It attains more significance if you have several loans to be repaid. So, the family’s breadwinner should take a term insurance policy for a substantial amount. It can help the family tremendously in unforeseen circumstances.
Similarly, all family members should have medical insurance, especially with the risk of COVID-19 hovering over our heads. Medical expenses can drain out your savings completely. Hence, a medical insurance policy can help mitigate this risk.
A contingency plan is crucial for any saving strategy. It can be of tremendous help in an emergency.
Insurance can be handy in an emergency, but every person should earmark a specific portion of the household income towards a contingency fund. It is similar to having a sinking fund. It is advisable to hold such funds in a PPF account or a pension fund. One should ensure not to withdraw these funds during its tenure. PPF and pension funds ensure a steady flow of income after your retirement age.
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The Significance of the 50-30-20 Rule
We have discussed five excellent tips for saving money. However, do you know how much funds have in your bank account to cater to an emergency? You should remember the 50-30-20 rule.
This rule envisages earmarking 50% of your income towards meeting your needs, 30% on your discretionary expenses, and 20% on your savings/debt. The advantage of the 50-30-20 rule is that you have sufficient cushioning to take care of an emergency. While 20% is already earmarked for your savings, you can curtail your discretionary expenses and reduce them whenever you need funds. A better option is saving 30% to make your financial position comfortable.
The Key Takeaways
Here are the critical takeaways from this article on how to start saving money.
- While increasing your income generation is not entirely within your control, controlling your expenses certainly is.
- Reducing your unnecessary expenses can help you save money.
- Using your credit cards wisely and paying the entire bills on time allows you to benefit from the interest-free period offered by credit cards.
- You can take advantage of the discount offers available on various apps and save money. The logic is that you spend less, so you save more.
- Choosing your loans carefully can help you save substantial sums of money.
- It is a smart move to have a contingency plan to cater to unforeseen expenses.
- Remember the 50-30-20 rule and stick to it.
Saving money is critical for every individual because it enables them to live life with their heads high. They need not rely on others for their maintenance expenses. Following the five tips discussed here can help you to save money fast.