Countless people lost their jobs or witnessed major income depletion due to the Covid-19 pandemic last year. Therefore, saving more money is going to be highly crucial in 2021. When you save more money, it helps you to reach your financial goals in time and stay better prepared to ward-off financial contingencies. This year you can overcome last year’s fund erosion by saving more with a lot of financial discipline.
Let’s check out 5 intelligent steps to get you started.
Avoid new debts unless essential
If your savings have taken a hit and you’re finding it difficult to meet your financial obligations, you might want to avoid taking non-essential loans this year. It’s time to recover the income loss that you might have experienced due to Covid-19. Unnecessary loans add up to your repayment obligation and reduce your capacity to save money. This is absolutely necessary for those who have availed the loan moratoriums last year which are likely to have extended their loan tenure or hiked their overall interest burden. You must aim to save more this year so that you’re able to make part-prepayments in addition to your regular EMI repayments to become debt-free sooner.
That being said, you may avail a loan facility for things that you may find to be essential for accomplishing your goals if you have a thorough repayment plan and your existing debt situation is under control.
Consolidate multiple loans
If you have multiple existing loans for which you are paying a high-interest rate, you might want to consolidate your loans. Loan consolidation can help you bring down the interest outgo and thus lower the total EMI obligation. It may, thus, help you to save money towards interest payment and assist you in boosting your overall savings.
Evaluate and prioritise your expenses
Many of us learnt the importance of savings the hard way last year. Those who had adequate savings in place somehow managed the tough challenges, but going without regular income was doubly challenging for those whose savings were marginal. As such, you should prioritise your expenses and try to cut down the expenses which are listed lower in your priority list. Your primary focus should be on the expenses that are essential to your financial goals and sustenance. You should also evaluate your budget every week and match it with your long-term budgeting target. If your weekly expenses exceed your budget, you should take immediate steps to cut down your non-essential expenses in the following weeks. Regular evaluation of your budget will ensure that you don’t go off track while spending money.
Choose your spending priorities wisely. For example, if you have to spend money on a holiday, you should plan your budget and set your maximum spending limit. When booking tickets, hotels, or a travel package, you should compare the offers online to find the best deal to save money. Similarly, for shopping, see whether you could use discount coupons or payment modes like credit cards that often allow cashback or accelerated reward points on eligible spends. You may also wait for a sale while shopping for clothes, mobiles, TV, etc., to boost your savings.
Save first, spend later
Control unplanned spending. People who spend first and save whatever is left are generally able to save lesser than those who save first and spend later. Firstly, set an annual savings target according to your requirements and then break it down to monthly targets. When you get your salary, set aside money for your savings targets, followed by your essential expenses and loan obligations and use the remaining funds for discretionary expenses. Financial discipline would a go a long way to ensure you’re able to meet your annual savings targets in time.
If you want to save more, you need to change your financial habits accordingly. Keep a strict watch on your spending patterns. Spending through the non-cash methods like credit cards, debit cards and UPI will also help you track your spends, helping you plug potential drains and improve savings.
It’s also crucial to keep at least a portion of your saved money invested so that it continues to grow automatically. Choose investment products to grow your savings that are in line with your financial goals, risk tolerance and liquidity requirements which also help in maximising your tax-deduction benefits if required.
(The writer is CEO, BankBazaar.com)