There may be myriad reasons for families not being able to save much, thus, rerouting our minds to the need of being thrifty with our spending behaviour. The “World Thrift Day” is observed on October 30 in India and October 31 worldwide to remind people of the importance of regular and forced savings.
Several factors contribute to the recent drop in Indian households’ net financial savings. One primary cause is the escalating debt levels. Many Indian households have resorted to borrowing money to purchase homes, automobiles, and various consumer goods. The interest rates have witnessed a substantial rise over the past year, largely due to the ongoing adjustments in policy rates by the Reserve Bank of India (RBI). Consequently, this has left numerous middle-class households with less disposable income available for savings.
In addition, inflation has compelled numerous individuals to tap into their savings to cover their day-to-day expenses. Nevertheless, it remains essential for people to maintain a portion of their savings as a financial buffer to handle current financial obligations and to be prepared for unforeseen emergencies in the future.
Prioritising the growth of savings and making wise investment choices is crucial for individuals. Such actions can lead to expense reduction, income augmentation, and potential tax savings. Some essential steps to augment your savings include:
Have a budget in place
Crafting a budget and stashing away funds empower you to manage your financial affairs and attain your monetary objectives. This approach equips you with the knowledge and perspectives necessary to oversee your financial well-being. Budgeting and saving stand out as fundamental financial competencies that everyone should possess
Furthermore, this will enable you to monitor your earnings and expenditures, allowing you to pinpoint how and where your money is being allocated. Once you have a clear understanding of your financial flows, you can initiate adjustments to increase your savings. Here are some guidelines to assist you in formulating a budget:
- Assemble your financial documentation, including pay stubs, bank statements, and credit card statements.
- Compute your monthly income, encompassing your salary, wages, earnings from side hustles, and any other revenue sources.
- Enumerate your monthly expenditures, encompassing fixed costs like rent, mortgage, utilities, and insurance, as well as variable expenses such as food, transportation, and entertainment.
- Analyse the relationship between your income and expenses. If your spending exceeds your earnings, you’ll need to implement adjustments.
- Devise a strategy to curtail your expenses. This might entail trimming superfluous spending, like dining out less or discontinuing unused subscriptions. You could also consider augmenting your income by taking on a part-time job or embarking on a side hustle.
Work on your financial goals
Establishing precise savings objectives is a crucial step in initiating your savings journey. Merely depositing funds into your bank account(s) routinely can make it more tempting to withdraw them for various purposes, potentially leading to overspending and dipping into your intended savings. Therefore, it’s imperative to save with a distinct and defined target or purpose in mind.
Having specific financial objectives is pivotal for sustaining motivation when it comes to saving money. When you are clear about what you’re striving to achieve, it becomes simpler to make necessary sacrifices and remain on course.
Consider the following suggestions for establishing financial goals:
Specificity: The more specific your goals are, the more attainable they become. Instead of stating, “I want to save more money”, specify your aim as “I want to save a ₹10 lakh down payment for a house in two years”.
Measurability: Ensure your goals are measurable, allowing you to gauge your progress and maintain your enthusiasm. Rather than a vague “I want to invest for retirement,” express it as “I aim to save ₹25,000 per month for retirement.”
Achievability: While your goals should be challenging, they should also remain within the realm of attainability. Avoid setting unattainable objectives that might lead to disappointment.
Relevance: Your goals should align with your unique financial situation and broader financial aspirations.
Time-bound: Introduce specific deadlines to your goals, infusing them with a sense of urgency and motivating you to reach them.
Stop spending unnecessarily
Numerous young individuals of today encounter challenges when it comes to saving money. Several factors contribute to this difficulty, such as the soaring cost of living, the burden of student loan debt, and meager wages. Particularly for the millennial generation, mastering the art of saving on a modest budget can be quite a struggle. However, the key to reducing your expenditures lies in making gradual adjustments in various aspects of your financial life, as opposed to making significant budget cuts all at once.
A possible solution is to allocate a portion of your earnings for savings as soon as you receive your paycheck. This can be a set percentage of your income or a fixed monthly amount. Additionally, make the most of cost-effective and complimentary activities. In most communities, there are plenty of budget-friendly or free things to enjoy, like spending time in the park, exploring museums, or participating in no-cost events.
Plan an emergency fund
Picture facing an unexpected crisis with no financial cushion. This underscores the importance of having an emergency fund. An emergency fund constitutes a vital element of a well-rounded financial strategy. While the general guideline suggests maintaining three to six months’ worth of living expenses in your emergency fund, it’s prudent to target a higher reserve, particularly given the upward trajectory of healthcare costs and the unforeseen situations that might necessitate immediate access to funds. This reserve will offer you a safety net for covering bills in case of job loss, unforeseen medical bills, or other unanticipated financial setbacks.
Here are some of the advantages of having an emergency fund:
Debt avoidance: Having an emergency fund means you won’t need to rely on credit cards or loans to handle unexpected expenses, ultimately saving you money on interest and fees.
Stress reduction: Knowing you have an emergency fund can provide peace of mind. You won’t need to fret about how to cover bills in the event of job loss or other financial setbacks.
Financial goal achievement: An emergency fund can serve as a cornerstone for your financial future. Once you’ve amassed sufficient funds to cover six months’ worth of living expenses, you can start saving for other objectives, such as a home down payment or retirement.
If you haven’t established an emergency fund yet, begin saving today. Even if you can only set aside a small amount each month, it will accumulate over time.
Set up automated savings
Automating your savings is an excellent method to save money without needing to actively manage it. Many banks provide the option to establish regular transfers between accounts, enabling you to set a specific sum to be automatically moved from your checking account to your savings account on a monthly basis. To automate your savings, follow these steps:
- Access your online banking account or use their mobile app.
- Locate the section for setting up recurring transfers.
- Specify the transfer amount, frequency (e.g., monthly, weekly, or biweekly), and the initial transfer date.
- Choose the accounts for the source and destination of the funds.
- Review the transfer information and confirm your request.
Once you’ve established a recurring transfer, you can be confident that your savings will steadily grow each month without requiring your active involvement. Additionally, you have the flexibility to modify the transfer amount or frequency as needed. Here are some pointers for streamlining your savings:
- Begin with a modest amount. If you’re unable to allocate a substantial sum each month, initiate with a small contribution and gradually increase it over time.
- Schedule transfers for the day following your payday. This way, you’ll automatically save money before the opportunity to spend it arises.
- Define clear savings objectives. This will help you stay motivated and remain on course to achieve your financial targets.
Lower your debt burden
Taking steps to systematically pay off older debts is a commendable strategy for enhancing your financial well-being. High-interest debts can weigh heavily on your finances, and settling them can liberate funds that you can redirect towards achieving other objectives or investing in your future. Here are some strategies for reducing older debts:
Compile a debt inventory: Create a comprehensive list of all your debts, including the type of debt, the outstanding balance, the interest rate, and the monthly payment.
Prioritise wisely: Focus your efforts on paying off debts with the highest interest rates first. This approach will yield long-term savings.
Craft a budget: Develop a budget to monitor your income and expenses, enabling you to determine how much you can allocate towards debt repayment each month.
Exceed minimum payments: Whenever possible, aim to make payments beyond the minimum requirement on your debts. This accelerates debt reduction and reduces interest costs.
Explore debt consolidation: If you’re contending with multiple high-interest debts, explore the option of consolidating them into a single loan with a lower interest rate. This can result in reduced monthly payments and simplify debt management.
Paying off debt can be a challenging endeavour, but it’s essential to stay motivated. Keep in mind that every payment brings you closer to a debt-free future.
Embracing thriftiness is a commendable practice, and it comes with several advantages. For instance, living a thrifty lifestyle can bolster your savings, enhance your financial security, and assist in debt reduction, ultimately resulting in reduced financial stress.
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Updated: 30 Oct 2023, 04:39 PM IST