According to Warren Buffett, saving should be your first priority over spending. Unfortunately most of us do just the opposite, and that is the reason why we often struggle to attain financial freedom we always dream of. In this post, I will share with you some very easy tips to save money that you can use effortlessly in your daily life without being a penny-pincher.
But before we go and look at those easy tips to save money, we need to understand the root cause of our poor saving habits and why we often fail to save the desired amount each month and live pay check to pay check.
The Problem with Saving:
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Just search the internet on how to save money, and you will find tons of articles, written by some of the biggest experts on personal finance on how to save money. Still if you look around yourself, you will find that most of the people still struggle with money on a daily basis why?
The answer to this lies in our own psychology and the way we think. There are two types of mind that we use in our daily lives, reflexive mind and reflective mind.
Reflexive mind is driven by impulse and emotions, and that is why it is able to make decision much faster.
The downside of reflexive mind is that while makes decisions quickly, it does not make rational decisions which are necessary, especially in serious matters like saving and investing.
Reflective mind on the other hand uses rational approach to decision making, it collects various data points, processes them and reaches a logical conclusion after going through various aspects of a situation.
While reflective mind is more logical and practical decision maker, the downside of it is that it takes a lot of time and energy to make a decision.
In a world where we are pressed against time to make quick decisions, we often depend on reflexive mind for our decisions rather than reflective one.
That is why, when it comes to making a decision whether you should buy that shiny little car or a piece of jewellery, we often get carried away, and pull out our credit card without giving a second thought on what it will do to your financial future. By the time reflective mind comes with a result, the damage is done.
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Depending on reflexive mind over reflective one is one of the crucial reasons why most of us fail to make any savings by the end of each month.
So next time you come across a shiny little thing you want to buy, just wait for a few seconds and think, do you really need it or its just your impulse that’s pushing you to make unnecessary expenses?
Easy tips to save money
Having understood the problem behind why we are poor savers, the question remains, how can you start saving money? A lot of ink has been spilled about how to save money, however, most of these methods discussed are either too hard to put to practice or are too old fashioned to be implemented.
Trust me, I am not a fan of boring, old school investment advice such as “Set an investment goal” or “make a budget”, because let’s face it, had they been that effective, we would not see so many people facing financial problems.
What I am going to share with you is clear, actionable, and very easy tips to save money effortlessly. Let’s look at each of them by starting form one of my most favourite method:
Tax yourself:
This is the best easy tip to save money. Every time you buy a product or service, you have to pay a part of your purchased amount as a tax to the Government, and that is how Governments collect revenue for its projects. Why can’t you use the same the same strategy for saving money? Here is how to do it.
Every time you shop, just tax yourself a fixed percentage of the bill and deposit the same to your savings account. For example, you can charge 5% of your total bill amount as tax, so if your shopping bill is ₹1,000 the tax thus collected would be ₹50.
Now these small amounts may look irrelevant at first, but such small savings done week after week for few months will make a handsome amount in savings very quickly. Also the best part about this trick is that it generates savings automatically, without coming in the way of your habitual spending. So while you are spending money which we almost always do, you are also saving a part for your future.
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Slowly, over a period of time, you will realize that you have become more sensitive and rational towards spending. Once this gets into your habit, you will subconsciously start calculating how much you need to save for each expenditure. Slowly, you will start curbing your unnecessary spending as you will be repeatedly reminded of it.
Pay yourself a salary:
The third easy tip to save money is to pay yourself first. Now, this may sound similar to Robert Kiyosaki’s “Pay yourself first” method mentioned in his book Rich Dad, Poor Dad, and it somewhat is, but the rationale behind it is slightly different.
If your company pays a salary to you for your work, or if you are paying your workers a monthly salary for their work, why can’t you pay yourself as well? Here is what you need to do.
Decide a small percentage of your total monthly income (say 55 or 10%, whichever is comfortable for you), and before you spend anything, make sure that you put this money in your savings account that is not supposed to be touched for a long time.
Let’s say you decided to save 5% of your monthly salary. Simply transfer this 5% of your salary to your savings account. Treat this account as a black hole, where the money can be withdrawn only when there is an emergency or if your financial goal is achieved.
This trick not only helps you save a lot over a period of time, the best part about this method is that you will not even feel that something is amiss from your salary. Try this and see how your savings grow each month.
Re invest your passive income proceeds:
Most of us have two sources of income, one is active, a source of income for which we have to work hard such as our salary, and the other source is passive, which grows with time without any additional effort from our side such as investments like fixed deposits, mutual fund investments even some additional bonuses that we receive from our employers.
We often receive extra money from these sources once any of these instruments mature. The moment we receive this extra cash we think about spending it.
Don’t touch them at all, treat them as a part of your savings and re-invest them, do not make plans or Budget them in your annual expenses. As soon as any money is received from these accounts, it should go to your black hole account.
This may sound harder than done, the trick behind it is to keep all these extra income safe from yourself, as sometimes your reflexive mind may want to spend it.
Don’t skip your EMIs:
Although you should always try not to buy things from borrowed money, still, there are times when you have to borrow at least some amount for necessary expenses. Now this may sound contradictory to the other methods but there is a reason behind not skipping your EMIs.
The moment you start paying EMIs regularly, it helps you bring down your EMI close to zero. Once you are done with paying your EMIs, you will start receiving that extra cash every month that you can use for your savings and investment. Let me explain this with an example.
Let’s say you are paying EMI for your car at ₹15,000 per month. As soon as the EMI tenure gets over, you will have extra ₹15,000 cash each month. Star putting this extra cash in your black hole account. This will help you save more without putting any additional effort to save money.
Since you are trained to live without this amount every month, you will not crave for it and saving it every month will be much easier.
Have a money Jar:
Probably the laziest approach to saving among all easy tips to save money is the money jar approach, which is also known as the coin jar approach. This is probably one of the oldest methods of saving money but still works like a charm even today.
The idea is dead simple, every day we spend some cash for our daily use, and almost every day we receive a lot of change in the form of coins. The trick is to keep a small jar in your house where you will store all your coins at the end of every day.
With small amounts adding up each day, you will find that over a period of few months, these small pennies add up to become significant amount. It may not look like a big deal to many, but if you are really cash strapped, or too lazy to think about new and better ways to invest, this is the best approach you can easily implement in your daily life.
What to do with savings?
So far we have seen many easy tips to save money, however, saving money is just one step and it is equally important to invest the saved money. The question is where should you invest? One of the best avenues to invest in today’s context is mutual funds.
However, you just cannot go and pick any fund that you like, before that, you must set some financial goals in mind along with time horizon and then proceed towards choosing the right mutual fund that suits your needs.
If I have to start investing as a beginner, these are the steps I would follow:
Step 1: Create a budget and decide your long term financial goals
You always make a list of things before going to shopping, in order to keep track of your needs. Similarly, before investing, you must understand your financial needs and time horizon within which you will have to achieve them.
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This will give you a clear idea on how much you need to save each month, how much risk you can take with your investments and which financial products are suitable for you.
Step 2: Educate yourself about mutual funds
Once you have clear goals in mind, it’s time to proceed to step number 2. As I said earlier, you cannot simply go and pick any mutual fund that you like, many investors also make a mistake of picking those funds that have performed well in the past, thinking that the past performance will continue in the future as well.
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This is one of the most common and the biggest mistake most investors make. That is why you need to educate yourself about various types of mutual funds, their pros and cons and then decide which one suits you the best.
Step 3: Pick the right funds and start investing
Once you have learned and understood what types of funds suit you needs, it snow time to start investing in these funds. Remember that you are investing for long term, so do not expect the fund to perform right from the beginning.
Think of it as planting a seed, you won’t see the result in a day or two, so you have to be patient and give it some time to grow.
Step 4: Learn about Stock Market
So, why am I suddenly talking about stock market? Well the reason is, you cannot completely depend on mutual funds alone to make you rich, when you invest in mutual funds, it is the fund manager who decides the asset allocation and you have no control over where he invests. If he make a mistake, you will be the ones to suffer.
Suggested read: Beginner’s Guide to Investing in Stock Market
That is why it is equally important to set aside some amount and invest in stock market. This will not only give you a complete freedom which stock to choose, but will also help you in learning the details about how the market works.
Final words:
Saving money is not always tough, all you need is some creativity, out of the box thinking and most importantly, the discipline to put those ideas to work.
Saving money is more of a mind game where one needs to keep a level headed thinking and understand the difference between needs and wants.
That is why it becomes necessary to use these easy tips to save money so that you don’t have to beat yourself up in order to save pennies.
I hope you enjoyed our post on easy tips to save money. That’s a wrap, thank you for reading, if you like it, don’t forget to share it with your friends and family members.
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