Whether you’re the little kid thinking about their pocket money, or working professional, saving money is a common goal all of us aspire for. But it’s easier said than done, of course. We have a myriad of expenses that simply can’t be ignored – be it rent, food or commuting. Then there are the occasional luxuries that one indulges in, like a movie, eating out, or visiting your favourite place. Saving under these circumstances can prove to be a harder task than one realizes.
To help you plan better, here are 5 ideas to reduce your expenses.
#1 – Start By Eliminating Debts
Eliminating debts is a proven way of building. The interest rate on debts, when compounded over a large period of time, can burn a significant hole in your savings. Start with the smallest of your debts, and work your way upwards. This will not only give you confidence to tackle the bigger loans, but also help in saving the interest amount. Credit cards, in particular, can charge exorbitantly high interest rates on your debt. Make sure you’re taking an instant loan instead.
#2 – Organization and planning
Allocating different tasks a part of your budget is one of the best ways you can reduce your expenses:
- Make a list of all the expenses you make on an average day, and categorize them on the basis of priority.
- Start by reducing your expenses on the low priority end of the list.
- Cutting a little amount here and there can make a big difference in your savings.
You can also make a financial calendar to help you remember your due payments. This will save the extra charge on late payment and simultaneously also improve your credit score.
#3 – Avoid high interest loans
With a myriad of banks and lenders in the market, there are wide ranging interest rates that are available. Low interest loans are usually accompanied by stringent terms and conditions that may sound lucrative initially but will prove hard to comply with. If you need loans, carefully research every available option. You can also turn towards personal loans, which provide immediate respite from money requirements. Instant loan apps like EarlySalary provide great options in this sphere.
#4 – Turn to SIPs
SIPs (Systematic Investment Plans) are a great way to both divert and grow your money simultaneously. As the name suggests, the concept is a planned way to invest your money in periodic intervals. The best part about SIPs is that they are flexible in their timeline, as they can be quarterly, monthly or even weekly investment opportunities. Since these plans are flexible, you can choose to increase your investment or discontinue at any time. All you need to do is pay the amount you wish to invest. Nothing more. Investing early and for longer periods of time can give you a good return on your savings.
#5 – Focus on the ’50-30-20’ rule
In a nutshell, the 50-30-20 rule says that allocate 50% of your income (after tax) for your necessary expenses, like rent, mortgages or bills. 30% to your ‘wants’, like small luxuries including movies, dining out etc. If you’re spending more than 30% on ‘wants’, it’s time to cut back your expenses a little bit. Finally, allocate 20% to your savings and investment. This will include emergency funds or the SIP investments you plan to make.
The rule was popularized by Elizabeth Warren, a U.S. senator in her book All Your Worth: The Ultimate Lifetime Money Plan. It’s a proven formula that has gained acceptance in financial circles as a legitimate method of planning.
Of course, this isn’t an exhaustive list. But it’s a good place to start on your journey to financial wellness. For more tips, check out the EarlySalary blog here.