Frequently I get calls from individuals asking this question- How should I save money?. Many of them started with a lucrative career but after a while, they find it difficult to generate enough surplus from their income. Different reasons can be attributed to it- a sudden increase in debt, high living lifestyle, job situation where hardly any raise in income etc.. Whatever be the scenario, it’s always important that one keeps generating healthy savings to have enough money to allocate for the future requirements.
Here are few steps one should take to ensure savings rate do not take a bigger hit:
Know What’s Coming In and What’s Going Out
It’s necessary that you have a complete awareness on what you are earning. There is a difference between the salary package and the net income in your hand. You need to pay taxes on the income you are receiving. So what you get in your account is post-tax payment and is the income from which you plan your expenses and future. As a salaried employee, this job is being done by your employer but you may still have to pay tax when you file your ITR. Do a detailed analysis as to what actual money you are going to get. Similarly, knowing your outgo is equally important because it tells you why you are not able to save money. If your spending behavior is your main concern then by analyzing your outgoes you would know where you are overspending. It can be your outings or impulsive buying which might be forming a major chunk of these. It may also be a high debt which you availed with the expectation of high income but it didn’t. Whatever be the cause find ways to curtail your overspending. If it’s more for debt then plan out a strategy to reduce your monthly outgoes so that you can have more savings in your hand.
Follow A Budget
Budgeting is essential to keep track of your finances. It gives a very good picture of what’s happening with your cash flows and why. When you are at initial stages of your career this exercise may look too boring. Even if so, built this habit. By making a Budget you will do good in restraining yourselves from spending on items which you may want but are not needed today. You also get a glimpse of the surplus you are going to generate in next few months.
Separate Your Savings Account
Savings will not be there unless you accumulate them. Bring a habit of letting your savings go into a specific account from where you can then allocate. As we say Pay Yourself First, this saving first needs to be in practice to actually save money. You can divide your expense and savings account so that both do not get mixed up and you know clearly what you are saving.
How Can You Earn More?
Many times your job growth is not decent enough to take care of rising expenses. If you have joined at a lower salary initially you will face this situation. Then change is what it demands. But changing of job or a career is easier said than done. Identity, if there can be earning opportunities along with your job which can help you increase your income. Taking tuition classes, consultancy assignments, etc. can become a good source of your extra earnings.
Resist Impulsive Buying
Youngsters especially fall to this prey. Impulsive buying is spending money on items which you do not plan. When there are no liabilities on your shoulder then whatever is in your hand is for you only. In such situation a habit of buying what you like then what you need to be built up. Then saving more money is on the backfoot. Resisting such impulsive buying is necessary which can be done only when you plan for your purchases.
Avoid Life On Credit
Be it credit cards, personal loan or any other debt , it hurts badly when you default. Easily available credit is good but also dangerous since you get lure to meeting those needs through it which are not within your means. Wiser that you avoid living life on credit. Restrict availing multiple credit cards and multiple loans.
To build a savings habit it’s necessary that you have an awareness of your finances. For this, you need to bring in a monitoring habit in your life. At the end remember below points to keep generating healthy savings:
- Plan for any purchase. Identify and give few days or months so that you do not overspend
- Know what you need and what you want. Want are the things which bring overspending in your finances.
- Making any purchase see how you can reduce the cost. What is available in a mall may be available at an old shopping market but at a reduced No harm in going there.
- Target a saving rate and follow it rigorously. Anything below 10% is a worry sign for your finances.
This article first appeared on money control. Here is the original link