It’s important to not get overwhelmed by your ambition to create wealth and cut back on necessities on a regular basis.
Going on spontaneous holidays, binge shopping, or filing your house with unnecessary gadgets: which one of these impulsive acts is stopping you from getting wealthy? Most people guilty of overspending either end up blaming their stars or the fact that they don’t make enough money. Well, none of those two can make you rich. What will? Finding ways to save more money, spending less, and being disciplined and committed to your money goals can help you build wealth.
We’re in the early days of a new financial year. Let’s take a look at some thoughts to explore to help you stay on track with your savings goals.
Set money goals first
Ask yourself the question: what are you saving for? Once you know the answer, you then start thinking of ways to save effectively. You pick your investment instruments as per your goal. While long-term goals such as life after retirement and building a house could mean investing in PPF or equity mutual funds, short-term goals such as going for a holiday or buying a car would mean investing in liquid funds or recurring deposits. Don’t be overawed by the enormity of your goal. With long-term planning, you can gradually move towards achieving your dream, no matter how arduous.
Save first and spend later
A lot of people take care of their expenses first and then save the rest. This often ends up reducing the saving potential, as you might not be left with enough to save. Instead save before you plan your expenditure. The easiest way to do so is by choosing automated savings options. Once you set an ECS mandate to your bank for your SIP or recurring deposit, there will be an automatic transfer of money from your account to the savings account.
Make your budget
One easy way to avoid overspending is by laying out a budget. Try the 70-30 rule of saving, for starters. Here, you use 70 percent of your monthly income for expenses such as rent, food, lifestyle, etc. and 30 percent for savings and investments. You might not be able to follow the rule in certain months under pressing circumstances, but make sure you put things back in order in the subsequent months.
Watch your debt
The easy availability of debt instruments such as credit cards often leads to reckless spending. Such unplanned spending must be avoided. You must always refrain from using a credit instrument unless it’s a bare necessity. Even if you take a loan from a friend or a bank, you must have a repayment plan, and return the loan at the earliest. Avoid getting into further debts to pay back your previous debts. You must prioritise paying back your loan before investing your money anywhere else, as the rate of interest on a loan is usually higher than that of an investment instrument.
Be realistic about savings
It’s important to not get overwhelmed by your ambition to create wealth and cut back on necessities on a regular basis. This would only deprive you of your basic lifestyle and lead you toward unrealistic goals. Also, after a point you might not find it bearable and break your fund all together. Try to optimise your savings, but find avenues for enjoying your income as well.(The writer is CEO of BankBazaar.com)