Saving is not sexy. It is just plain boring. And that attitude has never gotten you anywhere. Now you are desperate to start but don't know where to begin? Here are five tips to get you going.
Clear all debt first
Before embarking on a savings strategy, clear up all debt. To get your financial house in order you should clear the garbage first. Once you are totally debt free, you can start saving and investing and watch your money grow. Of course, this is only if you owe small amounts or you are revolving credit on your card. If you are paying off a housing loan then you can't wait till it is repaid to start saving. So if you are lucky enough to get a windfall or a huge raise or bonus, channelise this money into pre-paying your loans instead of saving it.
Keep track
"Where does my money go?" If you find yourself asking that question often, then its time you started looking for answers. Coffee addict? Maybe a huge portion of your wallet is dedicated to this habit. Let's assume one cup of coffee form the vending machine costs a mere Rs 2.50. This meager amount totals to Rs 7.50 a day, if your intake is three. Before you know it, your weekly office coffee bill is Rs 37.50 a week and Rs 1,650 a year (assuming you take eight weeks of leave). Cutting it down to just one cup daily will cost you just Rs 550 a year, a savings of Rs 1,100. Let's move onto cigarettes. A packet of Marlboro consumed daily amounts to Rs 21,900 a year (taking the cost of a packet at Rs 60 for 20 cigarettes). Now that is something to worry about (not just the finance but the health factor too).
So step one is to start listing down whenever you make a payment. Definitely a pain, but then you need an answer to your question. And, nobody's saying kick up all these 'little extras', just be aware. At the end of the day, you will be surprised to know where your money goes.
Let your card work for you, not against you
While cash just slips through fingers, it is not so in the case of a card. The billing statement at the end of the month will give you a clear picture where the month's expenditure went. That's why it makes sense to use your card at every opportunity rather than cash. Collect statements and compare them. A pattern should emerge. The culprit will either be restaurants, pubs, compulsive shopping, books or even CDs. It goes without saying that it is up to you to change this pattern.
While this will enable your card to work in your favour, if you use it to extend your income, all that you may succeed in extending is your debt. Once you start revolving credit on your card, you pay a rate of interest of around 2 per cent per month. This amounts to 24 per cent per annum. And you start paying this interest rate on each and every single transaction. No more free credit. Your card is now your enemy.
Be consistent
Remember the story about the hare and the tortoise? Slow and steady wins the race! That's how it is with savings. Every month make it a point to keep some amount of money aside, however small and insignificant it may appear to you. This amount can be kept in a recurring account or deposit so you are forced to save. Once this matures, then invest it in an instrument depending on your risk profile. So if you decide to put aside 10 per cent of your salary in this deposit, keep doing so. As your salary increases every year, the amount that finds its way into this nest will increase. But whatever percentage you decide, keep a minimum amount that has to find its way here.
Reinvest all the interest or dividends that you earn
After all, it takes money to make money. Once you put money aside for savings, don't even think of splurging the interest earned or whatever returns you get on it. That money should go back in the investment. Assume you put aside Rs 1,00,000 in a five-year instrument which offers a half-yearly interest of 12 per cent per annum. If this instrument was cumulative (you do not touch the interest), then you would get Rs 1,84,573 at the end of five years. But if you had withdrawn the interest twice a year, then the interest earned would have been just Rs 60,000.
