You’re just out of college, and have landed your first job. You’re now a salaried individual. What you have in hand is your hard-earned money. You can either spend this money whichever way you want, or you could be smart and save.
Saving early is the biggest favour you can do to yourself, and to your money. After all, we don’t just earn money just for the sake of earning it. We earn it to help us maintain a good standard of living, with ‘maintain’ being the operative word here.
Therefore, while spending recklessly may seem well in line with the motto of ‘Carpe diem’ (seize the day), it could also land you in trouble in the future.
As mentioned in our piece on retirement savings, the prices of goods rise every year. What is ‘enough’ for today, may not be enough for tomorrow’s expenses. This puts you in danger of facing a situation where you have no resources with which to ‘Carpe the Diem’.
But this apocalyptic future can be averted. With just a few simple changes to your money habits, you can easily ensure you always have enough cash without a major lifestyle overhaul. Here are a few tips to get you started:
1. Set a budget (and don’t budge from it)
The first thing you need to do is budget your expenses. Say you’re earning Rs. 30,000 a month – What you need to do is set aside a portion – 20 per cent if you’re ambitious, and 10 per cent if you’re finding it tough to save. Use the rest as your spending pool. When you prepare your budget, prepare it as though you only have Rs. 24,000 to spend. This may sound obvious, but the key is to stick to it.
Tracking expenses to stay within limit should also not be tough in this the age of smartphones. You now have a host of apps such as Moneyview to help you maintain a budget and manage your expenses efficiently.
2. Control unnecessary expenditure
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a. Spending is good. That’s what earnings are for. However, unnecessary and over-the-top expenditure are not good for your financial health. To help curtail excessive spending, don’t eat out every day. Everyone likes to eat out every now and then. But eating out at a restaurant (or ordering in) every day is not good for your stomach or wallet.
b. Use public transport. If you’re in a city that has a good public transportation system, having your own vehicle doesn’t make much sense – it’ll just be added expense (fuel, maintenance, etc.). Instead, use the bus or train.
c. Make use of sales. Shopping during the sales months of June and January, or during the festive season could ensure you get more bang for your buck.
There are several other ways to keep spending in check, such as not jumping for a credit card as soon as you can. But these serve as good starting points.
You’ve now managed to save up some money. But what do you do with it? Letting it sit in your savings bank account will only fetch you a measly return of 4 per cent per annum, which can also be taxed. That’s less than the rate of inflation, which means you are, in fact, losing money.
So, how does one stop this slow erosion of one’s savings? You can do that by investing wisely.
Before you get started with investing, educate yourself on investments first so that you can make informed choices. The FundsIndia Marketplace, Franklin Templeton Academy and MoneyKraft are good starting points for investor education. You could also seek the help of an unbiased expert financial advisor to ensure you’re investing smart, and investing right, always
Once you’ve taken care of these three points, the apocalyptic future we mentioned will be less likely to occur. However, that doesn’t mean you should stop here. As your salary increases, make sure your savings (and investments) increase as well.