Savings - II

Savings – Best Practices for Creating and Growing your Savings

All of us need to save. For emergencies like accidents, illness, layoffs. To support our kid’s college education. To make that down-payment for a car or house. And, more importantly, for retirement.

Most of us don’t really have any extra money to put away. So we have to find a sustainable way to move a little money from our income on a regular, sustainable, monthly basis.

Here are some proven ways to accomplish this.

1.     Set up a separate savings account. This will be different from your checking account, the account from which you pay for your expenses. This will be an account you “don’t have”, meaning you cannot count on the money in this account when you plan your monthly expenses.

2.     Put 5 to 10 percent of your monthly income into this account, before you make your spending plans. As I have already pointed out in the earlier article on Savings, we must treat savings as the first item of expenditure.  If you are so pressed that you cannot put away 5 to 10 percent, commit on a fixed amount, and make it the minimum you will put away every month.

3.     Join a systematic investment plan.

4.     Make it a point to save at least half of any         pay raises you receive. Same with any gifts, refunds or unexpected money you receive.  

5.     Spend wisely.

This involves two things – making a budget, and keeping an account of your expenses.

Make a budget. At the beginning of the month, you decide how you are going to spend your money. Allocate cash for the essentials – food expenses, payments towards car, mortgage, insurance, credit card, travel, entertainment, dresses, and of course, your savings account.

Every day, regularly, make an account of the   money spent. At the end of the month, see how far your actual expenses correspond with your  budget.

A more important purpose of keeping account of your expenses is to help you decide if you are spending wisely. Are there items that you can reduce your spending on, or avoid altogether?

Going through her monthly account of expenses for the first time, one of my friends was shocked to see that she was spending a thousand bucks for commuting to work. She was filling gas in small quantities several times a month, she was also getting some reimbursement form her employer, so she never really realized how much she was spending on gas until that day. She just started to leave home 15 minutes earlier every morning, and catch public transport to work, and at this time there was no crowd and she could travel as comfortably as she did when she was driving to work. This saved her an unbelievable 700 bucks a month! 

6. Control the bleeding. If you are a compulsive credit card user, take a  look at your card statement for the past six months. See how much you have been billed towards interest and charges. This is more or less the case with all debt, except that with credit cards the interest rates and charges are higher. 

We shall look at debt in more detail in the next article.

Meanwhile, start following these best practices from today. Get on the high road to your financial freedom!