I spent a lot of money on booze, birds, and fast cars, the incorrigible George Best had famously said. “The rest I just squandered.” Many people who struggle with their finances may find the footballer’s tragic philosophy relatable. They have so many expenses, they think, so how can they ever save anything? This financially problematic mindset is hard to break out of. Savings are essential to financial security and wealth creation.
Without savings, you’re at great risk. Therefore, you must find ways to break out of the spend-it-all mindset.
Here are some tips to get you to improve your savings.
AUTOMATE YOUR SAVINGS
The world’s greatest investor Warren Buffet says, “Do not save what is left after spending; instead spend what is left after saving.” There can be no better one-line money advice. If you’re trying to save something at the end of the month, you’re doing it wrong. Instead, start off the month by saving and investing at least 10 per cent of your take-home income. Use a bank recurring deposit or a mutual fund SIP to do this. You can start these online. This way, in the first week of every month, the money automatically gets funnelled from your savings account to your deposit or mutual fund account. Gradually scale up to 20 per cent, and keep improving from there.
YOLO, BUT KNOW YOUR LIMITS
You only live once, and you must enjoy your money, but the key is to balance your finances. This would allow you to live the life you want to, but also help you save. Therefore, set a monthly and yearly budget for your discretionary spends on lifestyle and entertainment. Let’s say your fixed expenses are 50 per cent and you need to save 20 per cent, so your discretionary spends should not be more than 30 per cent. Shopping, clothing, eating out, taking vacations, and buying new gadgets should fall into the 30 per cent bracket. This way, you get what you want, but you also limit yourself meaningfully.
GIVE YOURSELF SOME GOALS
When you don’t have financial goals and priorities, your whole income becomes disposable. Therefore, to prevent your income from being allocated towards avoidable or frivolous pursuits, you must get your priorities straight by setting money goals. You may have already envisioned some life outcomes such as owning a home, high-quality education for your kids, or a comfortable retirement.
So, go ahead, set those goals. Flesh out details such as how much money you need to achieve a goal, time left, monthly contributions required, and the investment instrument best suited to the goal. With clear priorities, you’ll learn to divert your money to what’s truly important.
HAVE A SIDE INCOME FOR SAVINGS
If saving any part of your existing income is a challenge, how about developing an additional income stream? Monetise a hobby, pick up a freelance assignment, or start a part-time gig. However, the sole purpose of this additional income is to help you save. There-fore, ensure that this income — as well as any periodic windfalls you have — go straight into savings or investments.
LEARN TO BE THRIFTY
You have an urge to splurge that can’t be suppressed. So, as you satisfy your urge, the least you can do is to be thrifty. Look for deals and discounts, and explore ways to maximise your cashbacks, credit card reward points, and freebies. Lifestyle, entertainment and consumption spends don’t provide any return on investments. But you can at least make meaningful reductions in those spends which will improve your savings.