Every human being has so many options to buy. But, all these options come with different options. For example, either you can buy a Honda or a Toyota and pay a modest amount every month. Or you can go for a Tesla S or Corvette and pay a lot of money every month. Let’s just not restrict ourselves in EMI, you pay in insurance, gas, etc. So, you need to be mindful of all expenses you have. You need to think like an organization, make yourself expense items, and try to find ways, how to reduce expenses on each of those expenses and I will give you a framework that will help you save money.
So, Which Of These Would Not Help You Save Money? Anything that is considered as luxury, anything you cannot afford to buy with a Debit card, anything that is not exactly necessity is not going to save you money.
Here IS a Framework that Will Help You Save Money
To start with, if you rent, you do not have to rent near the work, assuming you have a car or good public transport in the city, move away from work, drive a bit, and the rent will be a lot cheaper. And those savings will add up with time.
When you go grocery shopping, try to use coupons. Go shop in wholesale clubs, you will get organic and for a cheaper price than what you will pay in Whole Foods. If you know there is a cheaper option, go for that.
Reduce take-outs and make it yourself, be it coffee or your dinner. You will see the savings in no time. Making food at home is way cost-effective than eating out or even those take-outs.
Once you cut down on your living arrangement and food cost, now let us move to the car. Choose a car that gives you great gas mileage, does not cost a fortune every month, insurance is reasonable and maintenance is not too expensive. That means a standard car, not a high-end luxury car. Remember the speed limit is the same for every car, a faster car does not give you the right to drive any faster than a Toyota Yaris.
Your utilities are a good place to look for some savings. I have already made a post where I discussed many options we have to reduce the electricity bill. Same way, you can save on mobile bill, go for a fixed cost prepaid mobile on Verizon network, like Visible network. Cut the cord if TV is something you can replace with streaming services. Check your credit card statement to find out any streaming service that you do not need, maybe you have set up for autopay and do not remember. Just cancel those services. Cancel membership of any expensive Gym you joined, go for Planet Fitness if possible.
One final step, if you have a high-interest loan/ debt which is a credit card debt or many credit card debts. You should consolidate and transfer balance which will most probably save you on interest cost to service the debt. Another option would be to apply for a debt consolidation loan from a peer to peer portals like prosper or lending club and switch to a lower interest rate. That will save you a ton over time in interest costs.
What are three basic reasons for saving money?
The reason behind saving money are many. I love the security it gives me. And security comes handy during recession, knowing if I love job, I will still have funds for rainy days or with a bigger saving, you can retire early. I do not mean not working at all. But, we often do not spend time loving what we do, we do the job because it pays us. Instead of that we can spend some time doing what we love. Savings and creating passive income from that savings has wonderful effects.
Trust me, when you live a debt-free life, you live with less stress. Without worrying about the next paycheck. You can focus on today, instead of worrying about tomorrow. Does not it make it worth saving money?
Personally, I will stress on building up an emergency fund. This corona Virus crisis caught me off guard. While I save money for my retirement, I do not have enough in emergency funds. I am ashamed of that fact. But, you should be in that place. Otherwise when a crisis hits, and it will hit you when you are not expecting it, you should learn how and where to park your emergency funds.
What are the benefits of saving money?
When you save money for an emergency, retirement or if you plan to fund your kid’s education or marriage then you need to plan. Create a budget and stick to it. Often, people hire financial planners to help them a budget and create a plan for you. You need to understand, you decide where you want to spend your money, why you want to save and how much you want to spend. And all the projected return rates are hypothetical and based on historical figures. The future is unpredictable. Today the bank account mostly does not pay you anything. Government bonds do not beat inflation. Unfortunatly Nobody knows for sure that the Stock market will beat a 7% annual compounding rate in the long run.
Knowing and understanding the risks is crucial. And you need to set goals, where do you need the money and how much. Probably most difficult to set goals will be retirement amount. Since you do not know how long you will live after you stop working. Will you have enough savings to last your retirement? Inflation, medical expenses which will remain mostly unforeseen will make predicting risky.
But, with all these risks, you need to set a goal and come up with a plan to reach the goal. The plan is mostly budgeting and sticking to the saving plan. You will see the benfit when you reach the goal. It will be mostly mental peace and less worrying about finances. Enjoying what you wanted to do. But, saving today for future might mean sacrificing something you want to do today. But in long term you will be glad that you made those little sacrifices.