Everyone wishes to be rich one day, but earning big bucks is not the one-stop solution to getting rich. The solution is in finding ways to save better and spend less. Avoiding overspending and developing the right money-saving and investment measures should be your priority for building wealth.
Here are a few measures to help you stay focused on your money goals.
- Save Before You Spend
As investment guru Warren Buffet says, don’t save what’s left after spending, spend what’s left after saving. If you prioritize spending, you will save poorly for your future. You must start every month by locking in your savings and investments. The easiest way to do this is to choose automated savings and investment options. You can set standing instructions with your bank for automatic payments towards a Recurring Deposit or Mutual Fund SIPs. You should also automate your payments towards rent, utilities, Credit Cards, insurance premiums etc. so that they’re paid in a timely fashion without your intervention. This way, you’ll meet your mandatory savings goals and be left only with a portion of the fund that you can use at your discretion.
- Set Yourself Some Money Goals
In order to be motivated to save, you need to set yourself some goals. When the destination is clear, you can pick your path, i.e., the right investment instruments. While long-term goals such as saving for retirement could mean investing in PPF and Mutual Funds, short-term goals such as buying a car could mean investing in Debt Mutual Funds or Recurring Deposits. The sooner you set yourself a goal, the clearer your path becomes towards getting there.
- Make A Monthly Budget
Once your goals are in place, work towards laying out a budget. Identify fixed expenses (such as rent), non-regular expenses (such as a doctor visit), and discretionary expenses (such as going on a holiday). Next, calculate what you can save and invest each month in line with your financial goals. Often, knowing your discretionary expenses will help you identify money leaks and thereby find you avenues to increase savings. With a broad understanding of where your money ends up, you can make better spending choices and thus save more money. Remember: cutting back on unnecessary expenditure is the single best way to build wealth.
- Think Of Opportunity Costs
Every time you spend on an item, consider how you could have used the money alternatively to save up. Commonly referred to as opportunity cost, it suggests an alternative course of action that could have optimized the use of resources. This doesn’t mean that you deprive yourself of luxuries altogether but weigh your benefits against the cost every time you make a transaction.
- Careful With Your Debts
It’s easy to overspend through instruments like Credit Cards, which is having a loan on tap. Therefore, you must avoid unnecessary expenditure and stick to your budget. This will help you stay out of debt. Even if you use your Credit Card or take a loan to meet your urgent requirements, make sure you have a repayment plan in place. Do not take loans to pay back previous loans. It could land you in a debt spiral. Always aim to clear your Credit Card dues and EMIs dues in full and on time.
Setting some goals, maintaining discipline, and keeping a hawk eye on your expenses are ways to boost savings and creating wealth.
(The writer is CEO, BankBazaar.com)