Saving money the easy way | Save in small steps

How to save in small steps

Controlling spending and saving money has never been more important than today, when most parts of the world are caught up in the grips of economic recession, and so many people face uncertain futures. Thinking of how to save money in small steps will help us save money without feeling much deprieved of things we are used to.

My grandmother used to tell me of her grandfather – His monthly income was just 10 Rupees, but on the last day of the month he would always have 1 rupee left (and of course no credit card balances, mortgage or personal loans ever). That was living within ones means, and since it is back in fashion again, here are a few tips on spending less and saving more. Of course as all the money experts will tell us, money habits are very much a function of one’s personality – what will work for one may not work for another.

But a good way to approach this is to conceive of managing expenditure by focusing on one thing at a time. To save a certain amount of money may appear overwhelming, the trick is to reduce it down to set of simple, easily managed optimizations, none of which would individually appear to be any great deprivation but which would collectively enable you to save significantly.

1. Budget and keep track of income and expenditure – Easier said then done, but you would be surprised to find out where the money goes.

2. Classify your expenses into categories such as groceries & milk, rent, electricity, insurance, education, entertainment, transport etc.

3. Set a target for monthly saving. This has to obviously come about by decreasing expenditure and/or increasing income. Many salaried people would probably have more control over their expenditure rather than income, but this need not be necessarily so.

4. Decide how you will achieve this target with respect to managing your income and expenditure. Now suppose you wish to save 20% of your current monthly income – one way of doing this is to increase your income by 10% and reduce expenditure by 10%. If it is impossible to alter income then of course you will have to focus more on the expenditure. If you are of the type who can’t stand to cut down on any cost or it is simple not feasible, then you have to find a way to supplement your income. Of course it goes beyond the mere arithmetic.

5. Once you have set on a target to reduce the expenses, say by 10% - analyse all your expenditure groups and see how you can achieve this. For example a 10% cut in electricity bill can be achieved by simply turning off lights and fans when you leave the room, keeping the AC on for lesser time, putting off the TV/PC monitors when not in use etc. These simple actions will probably save 10% of the bill painlessly. Similarly analyse each expense group and you will often find that a 10% reduction can be done without too much of a deprivation. For example for the essential groceries, if you plan on a monthly basis and shop around for the best deal, you could get good discounts. Some supermarkets may have special promotional offers at the month end and so on. Similarly shop around for savings in insurance.

6. There will be some fixed expenses that you cannot reduce by 10%. To make up for this, you could reduce the discretionary expenses more. For example, if you eat out twice a week, you could cut it down to once a week.

7. The important point to note is that while in rupee amounts saving say Rs. 3000/- if your income is Rs. 15,000/- may appear tough, if you break down the task into a simple one of reducing each spend by 10%, it would not appear so huge a task.

8. There are also many ways you can buy things cheaper - like buying at wholesale markets, exploring discount sales, using coupons, etc. Of course using all that you buy and not wasting anything also helps a lot.

9. Now, how can you increase your income by 10%? One way, is of course to ask your boss for a raise! But there are several things you could do apart from that, such as taking up a part-time job, having another member of the family take up a part-time job, take up some free-lance assignments relevant to your field etc. There are many on-line sites wherein you can take up small freelance assignments for some extra earning.

Disclaimer: The above article only represents the personal views of the author, who doesn't claim to be an expert in this field. This is in no way a subsititute for professional legal, business, financial or accounting advise. You should take advise from a qualified professional when required. The author disclaims specifically any responsibility for any action or decision taken on the basis of this article.