1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
Saving enough money is a massive headache for many. The rising costs of living and necessities have become so high these days that we often feel overwhelmed by our finances and eschew the tiniest effort at saving money. You might think that you cannot possibly save after attending to all of life's expenses. However, that particular thought can adversely undermine your financial health. You should persuade yourself to believe in the fact that there are plenty of simple ways to siphon money into your savings from a fixed income. If you sow some seeds of little savings, it will gradually blossom into added layers of financial security. Start slowly, but do get to the action.
Many of us who are saving a good amount assume that we are optimizing our savings. However, you will be surprised to discover how you can save much more by making petty lifestyle changes and tweaking a couple of spending habits. Here are a few tips that you can use to trick yourself into saving much more than you can possibly imagine.
If you trust your willpower to ensure that your savings fund is always updated, go with your guts. However, willpower is often overrated. The human mind is susceptible to temptations. I have always been a confident person. I was sure that I would remember to deposit the planned amounts to the respective mode of investment. I had even set up the "Ok Google" lady to remind me. However, it turned out that my memory wasn't as sharp as I assumed, and it doesn't take any effort to ignore Google's reminders. It is safer to set up automatic transfers to ensure that you don't miss a payment.
Most banks these days provide the facility of automatically deducting your money from your salary account and sending it to your savings. Recurring Deposit accounts have the facility of setting up a standing instruction to transfer a fixed amount from your salary account every month on a date preset by you. Some banks also have the "auto-sweep" feature that automatically moves money from your account and creates short-term temporary Fixed Deposits whenever it finds a substantial amount in your savings account. You can withdraw the money using your debit card whenever you want as these Auto-sweep FDs don't have a lock-in period. You could authorize your bank to implement this facility on your account and earn interest on money that you are not using at the moment.
Hide Your Savings
You should hide your savings from yourself. It isn't a joke. You need to devise a way to stack away your savings so that you are not reminded regularly that you have the money. If the money is out of sight, it will hopefully be out of your mind, and then you needn't battle with the temptations to spend it. However, you cannot afford to lock up all your money in a non-withdrawable account. So what should be your strategy?
Well, to begin with, segregate the various types of savings. Your emergency fund must be readily accessible. You should put it in a deposit scheme where you can access the money quickly without paying a penalty charge. Savings account could be the perfect solution, provided that you don't keep it in the savings account that you use for all your primary transactions. If you are profligate, you must shove the money off to a separate account in a different bank and distance yourself from the money. Deposit your savings for short-term and mid-term financial goals into Fixed Deposits (FD) account or a Debt Funds or in Equity Linked Saving Schemes (ELSS), where it stays locked until the right time for withdrawal. All the money for your long-term financial goals should be safely packed away in a long-term deposit scheme, preferably a secured investment scheme like PPF that locks your money for 15 years but gives a reasonable rate of interest. This being said, don't ignore these accounts entirely once you have moved them out of your reach. Set up alerts for any withdrawal or unusual activity so that you can catch fraud.
Label Your Savings
Try labeling your accounts with its purpose. It could deter you from tapping the money for other uses. Few international banks allow you to set up multiple sub-accounts and give a name or a nickname to each, such as vacation, taxes, car fund, new apartment fund, etc. Check if your bank allows such a facility. If you could name your accounts, it will help you think straight and sacrifice other inessential cravings - your psyche won't let you buy a new phone from the money saved in your "Fun in France" account.
Use Money Management Tools
There are several money management tools available that can track our expenses automatically. You can download in your phone them for free. Walnut, Money View and ET Money are quite popular in India. Most of these apps function as a money management tool as well as an expense tracker. These apps can read the bank transaction SMSs and track them accordingly by sorting your expenses into groups such as bills, travel, groceries, etc. You can also create additional expense categories and manually record your expenses. These apps help you understand where and how you are spending your money and let you assess your spending habits. Some of these money management apps have smart features that can suggest viable investment options and ways to save tax.
Use Reward Cards
A rewards credit card can help you save a lot if used for your daily expenses. Credit cards often have tie-ups with stores and offer discounts on purchases. The cashback cards are even better as they allow you to transfer the cashback amount to your savings account or redeem it while paying your monthly bill in full. Some cash-back credit cards give an immediate refund of 1% or 2% on purchases. Some good ones even offer 5% cashback. Look for a card with such benefits but ensure that you are disciplined enough to pay off the entire credit balance every in every billing cycle to avoid interest charges. Other than reward credit cards, you should also get yourself a shopper's card if you frequently shop at a particular store. These cards let you access many promotional schemes as well as discounts on regular purchases.
You could look for a credit card that offers maximum rewards for the category of commodities that you frequently purchase. If you spend a lot on groceries, go for a card that offers more reward points for shopping at hyper/supermarkets. Also get a clear understanding of how the reward system works. Some cards might provide 1 reward point per Rs. 100 expenditure, whereas some cards might provide more. In some cards, 1 reward point is equivalent to Re.1, whereas in some others you might need 10 reward points to redeem Re.1. You should carefully evaluate the benefits provided by each card and select the one that offers the best rewards program.
Save your Raise
Getting a raise, a salary hike or an incentive is no doubt exciting. The natural human tendency is to spend it on our wants. You must learn to rewire your brain to look at the extra money as exactly what it is: extra. If you were already getting by on the money you are earning, you don't "need" to spend the extra cash. Whenever you get a raise at work, an annual bonus, your income tax returns, a cash award or a financial gift - put that money into savings instead of spending it on inessential spending. While putting away the entire extra money into savings might seem a little demotivating, you could consider keeping a little to spend on yourself as a reward (maybe around 20% of it) but try to invest the bulk of it into your savings.
Use a Savings Jar
You could revisit your childhood days and get yourself a piggy bank. If not a piggy bank, a normal jar will do. Whenever you use cash and have some leftover change in your pocket, you must just toss it into the jar. Some people save every coin that wanders into their wallets. Some stuff every Rs.10 note that they get during the day into the jar at the end of the day. It sounds funny, but when you collect and combine these changes, you might save a considerable amount.
Once you start taking tiny steps, you will be ready for some advanced strategies like challenging yourself for maximum savings. You could challenge yourself to put all your coins and Rs.10 notes into a savings jar or a piggy bank at the end of every day. A random number challenge could be more exciting - ask someone to pick a random number between 0 to 9, search your wallet for currency notes ending in the digit chosen and put all those notes into the savings jar. You could also take up a weekly challenge where you put Rs.10 each day in the first week of the month, followed by Rs.20 in the second week, and so on. You'll end up with Rs.700 as savings by the end of the month. Increase your savings incrementally but don't push yourself too hard.
If you happen to have a competitive spirit, find yourself a savings buddy and take up these challenges as friendly contests. Establish a few savings parameters and see who is faster at achieving the target. The winner can get a dinner treat from the other. This will keep both the competitors focused on their savings.
Change Your Habits
Do you happen to have an unhealthy habit such as smoking or drinking too often? Quit! Set aside the money that you used for tobacco or alcohol. Do you use the car to drive to the grocery store at the corner of the street to buy a packet of milk? Walk instead and save the fuel charges. A little exercise will do you some good. Do you frequent Starbucks or Cafe Coffee Day to pick up a cup of expensive coffee on your way to work? Buy yourself a thermos flask and carry some homemade coffee instead. These tiny adjustments can actually make a big difference in the long run.
Develop some good financial habits. Let's say you had an auto loan which took you years to pay off. After you have finally paid it off, you might be tempted to spend the extra cash each month on things that are unnecessary. Rewire your brain and pretend that you are still making that payment. Deposit the amount in your long-term savings or emergency fund instead of wasting it. Save it for another car that you might purchase in future.
If you have a propensity towards binge shopping, teach yourself a simple rule - whenever you feel an urge to buy something, tell yourself that waiting for a little more can get you a better price for the item. Convince yourself to delay the purchase and buy yourself some time to think about it. Talk yourself down. In most cases, you will be successfully dissuaded from making the purchase once you delay.
Tweak Your Budget
Make sure you track your monthly expenses to critically observe your spending habits to understand where you are overspending. This is how you can find out ways to control your spending habits and free up more money. When you get into the habit of tracking your expenses regularly, you will uncover your greatest financial flaws. You will discover a lot of inessential expenses and realize that you can work on them to improve your finances. Do not hesitate to change your spending pattern. While you can easily reduce the unimportant expenses, you could also benefit from re-structuring the 'big fixed expenses' in your life. Moving to a less expensive apartment, discarding a barely used facility, subtly changing your food habits can work wonders. Sometimes, when you track and investigate your expenses, you might also realize that you are paying higher rates of interest for your loans than the prevailing market rate. Review and adjust your monthly budget accordingly. Being on a budget will help you restrict inessential expenses so that you can maximize your savings.
Saving money is not very difficult. You can use these simple tricks to set money aside and galvanize yourself to reach your savings target much quicker than you had imagined.