1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
Cutting costs is one of the primary objectives of any form of production. The concept of reducing costs is not new, we work for companies that aim for cost minimization; but when it comes to managing personal finances, we hardly pay any attention to where the money is going.
Frugality can be loosely translated into making economically sound decisions in daily purchases. The art of frugality is seldom discussed, just like managing personal finances, unless someone is drowning ten-feet in debt.
Maybe it's time we stop overcomplicating our financial planning strategies and search for a simple and more effective alternative. One of the ways to stabilize your finances in the long-run is by learning how to live below your means. In fact, living below their means is one of the key techniques to accumulate wealth practiced by millionaires.
Plus, spending a rupee less is way less laborious than earning one more rupee. So buckle up and follow these tricks to spend less and get more out of your earnings.
Look-out for cost-effective alternatives
In the modern world, everyone is spoilt with choices, so much so that factoring in the cost-effectiveness of the things that we purchase is never a priority. Don’t get me wrong, I’m not asking you to live like barbarians, but there are low-priced alternatives to our daily needs.
All it needs is a little time and patience to explore the options which could be cost-effective and impart no concession in quality of the product. Taking control of your finances by contracting your shopping bills could be empowering.
Budgeting is one of the most efficient ways to manage money. If you’re good at allocating your income, you’ll end up saving much more than what you would save if you spend it without any planning. Use the famous 50-20-30 rule to plan your monthly expenditure.
Segregate your income into different expenditure-heads. Allocate 50% of your income to necessities, 20% towards savings and 30% towards loan/debt repayment. Budgeting lends a structure to your spending. It's relevant to know where your income is flowing to shrink your expenses.
When you allocate your income in an insightful manner, you’ll be able to filter the unnecessary expenses and then eliminate them from your list entirely.
Choose the vehicle that you need
If you’re someone who is planning on purchasing a vehicle of their own, don’t fall into the trap of image-centric advertisements. An expensive Porsche comes with a never-ending maintenance bill, thus digging a large hole in your pocket for years. Instead of buying vehicles for their face-value, go for cars that are fuel-efficient, require low maintenance, and would accommodate your family.
If you’re someone with a family of four or fewer people, buy a smaller, cost-efficient vehicle. The savings from making a sound purchase can be diverted towards more resourceful activities, like making investments in mutual funds or saving up to buy a new property.
Downsize the house purchase
Buying a home that is not within your means could result in draining a significant amount of money from your income annually. You might love the great neighborhood or the excellent swimming pool where you can host many parties, but if the home loan installment payable is more than 15% of your monthly income, it's better to start considering cheaper alternatives that can accommodate your family as well as your income.
Factor-in the maintenance cost of the house before you buy it. The selling price is not the only cost linked with a house - there’s maintenance costs, home loan monthly installments, renovation costs, etc. Make sure you have got a complete picture of the costs that’ll be compounded over time.
Draw in the amount of interest that you’re paying
Do you know that the amount of interest incurred on your credit card isn’t fixed and it depends on the daily periodic rate or DPR? One way to shrink the amount of interest payable is by making the credit card payments more frequently, which means that you can reduce the interest paid on your credit card if you make your payments more than once in a month and the interest incurred would increase if you fail to make payments on the due date multiple times.
Choose your credit sources wisely. If you’re planning on getting a credit card, analyze the approximate expense that will be incurred on a monthly basis, gather information on the perks and rewards on the card and make sure that you can make the payments on time!
Educate yourself on the several techniques of saving money. It doesn’t matter if you earn a lot or draw a basic amount of salary; there are multiple ways in which someone can save. Open up a savings account that offers a high rate of interest. Build the habit of making investments in mutual funds, stocks or bonds.
If you’re risk-averse, you can still choose to invest in index funds or short-term mutual funds which offer relatively less returns but involve less risk. With the right guidance, you can accumulate your savings without much hassle. Learn interesting saving methods from mymoneykarma.
Being frugal doesn’t necessarily mean that you’re a miser. When you spend less every day, you’ll end up diverting all the money that you save towards resourceful activities. Managing finances is an essential ingredient of leading a financially responsible life.
A little change in lifestyle could make a huge difference in the money that you amass eventually. So, kick-start your financially disciplined life by spending less each day. Avoiding unnecessary spending can boost your financial health considerably; it’s vital to learn how to shrink your expenses to accommodate a better layout of your expenditure.