7 tips to increase your savings out of your current income - Motilal Oswal
7 tips to increase your savings out of your current income - Motilal Oswal

7 tips to increase your savings out of your current income

The big challenge for every individual is how to save more. We normally tend to see savings as a residual number that is left after your expenses are met. The problem is that your expenses will automatically expand in tune with your income. That means you will end up being a dis-saver all through. Is it possible to budget and save money on a small income? Are there any fool-proof save-money tips? More importantly, what are the best ways to budget money and save? Remember, optimal savings forms the cornerstone of investments and your future planning. This is where you actually need to start. Here we present 7 ways to increase your savings from your current income.

 

1.  Have a goal to save and don’t be random..

This is the rudimentary problem. Most people tend to be random in their savings and tend to set  money aside when they have a surplus. That is not the right way. Therefore you need to start off with a goal in mind. Try to write down the goals you are saving for. It could pertain to buying a piece of jewellery as an anniversary gift to your spouse. It could be a saving to pay your child’s fees in an international school. It could be a saving for financing the margin money for your own home. Each of these is a very specific goal and can be a major incentive for you to save. Unless you save towards a goal, you are likely to remain a random saver.

 

2.  Start with a budget to estimate how much you can save..

A budget is the starting point. Project your incomes and expenses for the next few months. Try to include all the immediate and long term outlays required. Also provide for emergencies while you are budgeting. The beauty of budgeting is that when you put things down on paper you get a sense of perspective because you realize where your money is going. That makes it much easier to plan and that is the starting point to start saving more.

 

3.  Try to curb unnecessary spending after you budget..

Most of us do not realize but there is a lot of leakage in our household budgets. Do you need to eat out at expensive restaurants so often? Do you need to splurge on expensive clothes every alternate month? Why do we end up spending so much on sweets during festivals when they only spoil your health? Once you budget, analyze each item of expenditure and ask yourself if there is a smarter alternative, you will be surprised by the amount of savings this move can generate.

 

4.  Change your formula for calculating savings and expenses..

It is all about the mindset. The best ways to budget money and save is to treat savings as a compulsory outlay. Instead of looking at Savings as (Income – Expenditure) look at expenditure as (Income – compulsory savings). This discipline will make a lot of difference and teach you how to budget and save money even on a small income.

 

5.  Prioritize, prioritize and prioritize..

Saving money is not just about curbing your expenses but also about prioritizing expenses. Is eating out more important than sending your child to college? Look at the arithmetic. Let us assume that you spend Rs.5,000/- each month on eating out. Instead if you can halve this spending and save the balance in an equity fund SIP, you can create a corpus of nearly Rs.20 lakhs in 15 years, enough to see your child through college. When you look at it that way, savings start to make a lot of sense.

 

6.  Keep detailed expenditure records..

Why are records so important? You need to be clear that your spending cuts are not happening in areas that are causing long-term damage to you. If you cut down on nutrition expenses and end up spending more on medical expenses then that is not intelligent savings. But that will be obvious only if you maintain very detailed records. Nowadays, you have automated software and downloadable apps on your mobile that can do most of the number crunching for you. It helps you to get a sense of perspective.

 

7.  Watch your savings grow and share the stories with your family..

In the real world nothing beats the experience of watching your money grow. Your son may not be impressed by the idea of reducing the number of times you eat out. Instead, explain to him how the savings are going into creating a corpus for his future. Also, display to him how the corpus is growing each year. That is a good way to impress upon your family the importance of savings.

 

Remember, saving is about getting the basic rules of money right. The earlier you start and the more you involve your family, the more successful it is likely to be!
 

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