If there’s one Financial lesson that the COVID-19 crisis has taught investors, it’s the critical importance of building a savings pool that can be used to ride out a prolonged emergency, if required. Here are five simple tips to help you accelerate your savings and create wealth.
Avoid the lifestyle creep
Attempting to keep up with the Joneses is likely one of the most futile, angst inducing habits you can inculcate. Your friend went on that fantastic vacation to the Bahamas, bought a spanking new Bimmer and made a down payment for a flat. You don’t need to overleverage yourself to keep up. Keep at it and your time will come – spending your money before you have it is not just a recipe for severe stress, but is a habit that’ll forever keep you from growing your savings pool. Hey, for all you know, your friend has overleveraged himself to achieve his new lifestyle, and now spends nights worrying about loan repayments!
Put it on Auto Pilot
When it comes to accelerating savings, well begun is half done. Instead of waiting for lump sums of money to magically accrue over the months, prioritize your savings by starting a SIP or a recurring deposit of any amount that seems comfortable. Don’t worry, if you’re committed to saving money, you’ll find a way to carve this amount out of your income monthly. Make sure you avoid those fruitless savings plans by Life Insurance companies, that “guarantee” a return of 4-6% per annum. You’re better off spending your money and living the good life today than saving it in an instrument that will actually erode the real value of your money, considering inflation.
Do a “Fiscal Fast”
A “Fiscal Fast” can be a cathartic experience. What does it entail? It involves spending as little as possible for a premeditated period – a week, a month, a quarter or if you’re tough enough, even a year. What’s important here is to have a start and end date, and firmly commit yourself. Once you reach the end of the fasting period, you need to take stock of the amount of money you’ve saved by eating out less, choosing a less expensive movie theater for your weekly outings, not frequenting coffee shops, or taking public transportation such as the metro instead of driving long distances. Thereafter, deposit this saved money as a lump sum in a high growth equity mutual fund with a five year plus time horizon.
Don’t replace one loan with another
Just finished the arduous process of paying a car EMI for five long years? By now, you’re probably aching to make an upgrade to your trusty old vehicle. After all, most of your friends are sporting snazzier rides! Why not take a step back and objectively evaluate the need to upgrade? Why not continue with your current car for a couple of years more? A saved EMI of Rs. 20,000 could bolster your savings pool by nearly Rs 6 lakhs in another two years. That’s a fairly sizeable prize to be had in exchange of your patience.
Lower your fixed monthly costs
You may be surprised to know that you’re likely overpaying for many of your routine services, out of pure inertia! A few simple steps such as opting for a cheaper broadband connection, cancelling monthly entertainment services that you never use, or calling up your mobile telephony company and asking them for better options that are in line with your usage patterns, could cut your monthly fixed expenses by anything from Rs. 2,000 to Rs. 4,000. Once you’ve calculated your net monthly savings from these endeavors, start a new SIP (Systematic Investment Plan) for this amount immediately, or your expenses will catch up instantaneously!