Now Save Your Valuable Money using These 5 Simple Tips
Saving is a concept that all of us have heard of, we grow up looking at our parents or guardians saving up money and when we ourselves grow up, we try to do the same. While saving money is quite simple, what many people are not aware of is that if you do it the right way, you can maximize your money-saving potential.
Tip #1: Formulate a strategy
What is the right way of saving money? Doing it strategically.
How to save money strategically?
Whenever you do something with a proper strategy, you are bound to get better results. The same applies to saving. If you follow the proper strategy of saving money then you can save more efficiently and meet your financial goals in a better manner.
Also See: 10 Fool-Proof Ways To Save Money
Tip #2: Use Budgets
In order to save money strategically, first you will need to create a budget. This has been discussed numerous time before on this blog. A budget is going to make financial planning easier for you. It may sound like a cliched thing to do in 2021 but you can search around the web and find out for yourself.
Now you don’t have to sit down with a pen and paper to do it yourself. This is 2021, the fintech revolution happened in the last decade. You can simply download any financial planning application and use it to help you create your budget.
A budget is basically required so that you can determine your saving and spending rate. Once you know these rates, you can now start to build up your financial management strategy.
So let us assume that you have created your first budget and now you have found out that your saving rate is 10%, which means that your spending rate is 90%. So if your monthly income is say AUD 7000 then you are spending AUD 6300 and saving AUD 700
If this is your starting point, you need to work your way up from here.
Tip #3: Prioritize
Whatever your base rate of savings it, you will need to improve it. Once again your budget is going to help you here. If you use any app, then you can quickly pull up a list of your expenditures. You can also create the list of your expenditures yourself.
Which ever method you choose, make sure to prioritize the list. If you are looking to increase your savings, then it will be better to prioritize the list in terms of the need to pay back. For instance your expenditure list may look like this
- Auto loan
- Utility bills
- Credit card debt
- Tv subscription
- Miscellaneous expenses
Once you have a list it will be easier to determine where you can save the most from. If we look at the list we have then saving any money on mortgage, auto loan and credit card debt is not an option. You will have to make the contractual repayments, unless you are willing to negotiate for a lower rate but that`s a different topic. Lower rate increases the term limit so in the end you end up paying more or less the same amount.
This leaves us with utility bills, groceries, tv subscription and other miscellaneous expenses. These are the areas where you can push your savings rate up.
Also See: 7 Passive Income Ideas You Need to Know
Tip #4: Incremental savings
Simply saving money is not enough, you need to be able to push your savings rate up to a level that allows you to attain your financial goals. During the peak of the lockdowns, individual household savings rates went up as high as 30%, this shows that it is indeed possible to increase the savings rate up to 30% without much effort.
If you have a 10% savings rate as mentioned above, then give yourself a target of taking this up to 15% in the next 6 months. Then work on increasing this rate. You can increase your rate by going to the item in your budgeted expenditures list that is of least priority and start by reducing your expenditure on it.
For instance if you have reserved 20% of your monthly expenditure on impulse purchases, you can cut this down to 18% for starters. Going by our example, this will allow you to save $125 per month, that’s almost $1512 annually. Think how many shares of your best performing stock you can buy with this saving in a year?
Use this strategy to cut down expenditure where possible. Don`t just cut down the expenditure but analyse how much you can save with each expenditure cut. The point here is not just to cut down expenditure but to use the savings to increase your investment.
Tip #5: Automatic Savings
Don`t wait to save money till the end of the month. If you do it this way it will become very difficult to save according to your target. Instead set up automatic savings so that whenever you get a paycheck, your money gets automatically saved at the start of the month. This way you won’t have to meet your savings goal, instead you`ll have to use whatever is left to manage your expenditures.
In order to do this, simply set up a savings account separately from your checking account and set up recurring deposit to your savings account.
Hopefully, these five tips will help you save your money more efficiently. In the end, your financial discipline will determine how much you are able to save.
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