Rediff reader Murali Krishnan Ambati, 47, from Bengaluru shares an interesting formula to save money.
Here is Murali Krishnan Ambati's formula:
Net family income = Total income of a family earned during a fixed interval (i.e. a month).
This will cover all the income including salaries, bonus, bank interest, capital gains, part-time income, rent earned, etc.
This total income is called X.
From here the framework starts.
Divide X into 4 parts. You don't need to divide it into equal parts.
Part 1: Pay all dues from the past
You need to ensure that all your dues and liabilities including EMIs, loans, interest are paid on time without fail.
Part 2: Pay for your current living
One needs to ensure that all their living expenses are paid duly. This includes school fees, tuition fees, subscriptions, cable, gas, internet, phone, electricity and water bills, house help's salary, groceries, etc.
Part 3: Secure your future
This means that you need to find security for events that are beyond your control.
It includes term insurance, medical insurance, car/bike insurance, etc. that is required to keep your family safe.
This part also covers emergency expenses that will help you navigate through tough economic challenges like job loss.
Part 4: Save the remaining to create wealth
This is the last part and the most critical part to make wealth.
This part should be invested meticulously without keeping it idle.
The investment need to be in different asset classes and kindly include equity as one of them.
If you are not familiar with the stock market, the best way to invest in mutual funds is through the direct route.
Do not allow or permit a singly paisa to go through your DOOR without being invested appropriately.
We ask you, dear readers do you have any smart, effective and useful tips on saving money?
Have you applied these tips? Did it work? Share your tips and we'll publish the best ones on Rediff.com.
Write in to getahead@rediff.co.in with 'My tips to save money' in the subject line, along with your NAME, AGE and the place where you LIVE. Don't forget to send us your photograph.
