What is the secret to saving money?
For those who are surprised on knowing this thought, let us put it short and straight –yes, there are a few secrets to save money. However, what is all the more surprising is to know that these secrets have already been made public for decades. Therefore, it is solely upon you to decide whether or not to use them, and how.
What is the most significant part in the process of successful financial planning?
It is effective budgeting.
Many of us here are not sure about where to start. You cannot just directly start dreaming about saving money, without actually having a calculative analysis of the income as well as the expenditure. This will include all the income that is coming in, and going out. This prediction can be best done annually, as monthly calculations may meet fluctuations.
Let us understand how an effective budgeting will be about.
Analyze your Bills: Bills will include everything from your house rent, gas and electricity, water, phone, tax, internet and car expenses, to insurance and bond payments. You should also not forget any other debts (if any), and your child’s expenditures.
Next, will be your daily expenses. These include everyday items like food/ groceries, petrol, household items, holidays, dine out, and other entertainment. This also includes an estimation for unexpected costs, such as repairs due to wear and tear.
Once you have the expenses for the whole year, you can go ahead calculating your monthly and weekly expenses.
Then, you will be calculating your income. This will comprise of your salary/ earnings, returns from savings or investments, and other sources of income generators.
You may even look at your bank statements to get precise details to get a picture of the money coming in, and going out.
2. Utilizing left over money:
Towards the end of a month if you have any excess money left, then you must not leave it unnoticed in your bank account or spend without giving a thought. Let us learn the best ways to consider in case you have money left over.
a. It will be a lot beneficial to put the extra money into a savings account, or invest it with something yielding good returns.
b. You can also consider having a rainy day fund, to be used for an emergency or unexpected expenditure. The minimum recommended amount for this fund is thrice your monthly wage.
c. Next, you may also want to save in case you are thinking about making any large purchases in the coming time. This may include a new car, or house, or fulfilling any other of your wishes.
d. One can also choose to put his additional funds for clearing any of his existing debts, or building up his pension.
3. Are your expenses exceeding your income?
If this case holds true, then you must take an action immediately to avoid accumulating debt. Let us understand a few measures that you can take in such a scenario.
a. Don’t be lured towards availing a personal loan or spending via credit cards, just for supporting your spendthrift lifestyle.
b. Figure out how you can effectively utilize your ‘financial planning’ acumen to cut down on your expenses and increase your savings. You can consider various options to reduce your spending such as low-priced insurance, preparing meals at home to avoid eating out, etc.
c. Look for options that can help you build additional funds. For this, you may think over investing time in a part-time job, or claiming tax benefits.
Always remember that budgeting your personal finance effectively is the primary step towards ensuring yourself with financial security in the future. Thereafter, it is imperative to update the budget on a regular basis, just to keep a check on the wavering income and expenses with respective to time.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at firstname.lastname@example.org