When it comes to money, most people talk about how to invest your money, and how to make money from money. But very rarely does someone focuses on learning the most crucial part of personal finance i.e. saving money. I think it’s not their fault. It’s a common misconception in the finance industry that majority of people are good at saving money, which is far from the truth.
In this article, I’ll share some of the strategies that anyone could implement in their life and get better at saving money. Since you have come to this article, I would assume that you understand the importance of saving money and won’t reiterate it. Let’s jump right in and learn about some of the most interesting ways to get better at saving money.
Track your Expenses
Someone has rightly said,
You can’t improve something you don’t measure.
In our context, it simply means you cannot get better at saving money if you don’t track your expenses. After all, whatever is left after expenses is your savings. If you don’t know where and how your money is being spent then how do you even know if you can save some money. And even if you are already saving some money then also you have no idea how much you could actually save. That’s why it’s important to keep track of expenses.
Tracking expenses help in identifying our spending patterns and bad habits that go unnoticed because they have become a part of our innate personality. There are tons of amazing expense tracking apps available that you can use to get started. Expense tracking is not what it looks like on the surface, it’s more than that. It is also about raising your self-awareness of your lifestyle and money habits. Take control of your expenses in your hand. Start tracking your expenses immediately.
Maintain a separate expense account
If you are serious about saving money, this idea could be a game-changer for you. Let’s consider you have an account where you receive your salary (or income). Normally, people use that same account for paying rent, buying groceries or any other living expense. It is not a bad idea and there is nothing wrong with it if you are someone who knows what they are doing with their money and has it under control in terms of your expectation of how much money you would be left with by the end of the month. Though, I know that’s not the case for most people.
If you are like me who mostly survives the last week of the month in fear of running out of money before the next salary, then you should definitely open another bank account, separate from your primary income account. Now you may be wondering, what to do with that account and how would it solve your problem.
Let’s call your salary bank account as income account and a separate bank account as expense account. The names of the account are self-explanatory. We would only use our expense bank account for all the expenses, no matter what!
How to set up accounts for optimum saving?
In order to get started with this arrangement, we would transfer a fixed amount of money (our estimated monthly expenses), at the beginning of the month, from income account to expense account. Doing this explicitly would force you to consciously think and observe how much money you spend from your income. And in case you run out of money in your expense account, you would have to again consciously think if your expense estimate was wrong or if you are making an unplanned expense. Though you can always replenish your expense account at any point in time, it is highly recommended to do it only once a month.
In the first few months of this setup, you may find yourself replenishing your expense account more than once or twice a month and that’s completely fine. However, you should take each replenishment as an opportunity to learn more about your spending patterns and tweak your estimates accordingly so that you maintain spending discipline and also avoid the hassle of money transfer.
How to build self-discipline? – Automation to the rescue!
Since I’m an engineer, my mind rarely lives without finding inefficiencies in the system and replacing them with automation wherever possible. That’s exactly what I did for our setup. We’ll set up a standing instruction (auto-debit/transfer) from our income account to expense account to automatically transfer money on a specific day of every month. Good!
Now you might very well know how bad humans are at staying self-disciplined, that’s why we’ll make a few things a little harder to do so that the friction in doing them could push us back from doing it at all. Touching our income account unnecessarily for anything such as direct cash withdrawals, online shopping and any other activity is sinful. So we’ll block our debit card (ATM) using net banking. Don’t worry, it won’t block your card permanently, it’ll just disable it for usage.
Next, we’ll uninstall the bank app from the phone to avoid quick access to money transfer functionality. We also need to disable the online shopping, POS, international swipe etc., options for the debit card and net banking using the bank’s website to avoid accidental usage of income account for expenses. Most banks provide these capabilities today, if you are not able to find it on your bank’s net banking website, you can skip it. Last but not the least, remove the account from UPI apps as this is the most common way you would accidentally use your income account for expenses.
Once you are done with all the above changes, you are all set. Your income account should only be used for sending money to other accounts, including expense account and that too using only the net banking website, so our desired goal is achieved.
Spend in Cash
These days making expensive and unnecessary purchases through online shopping and online payments are easy and uncontrollable. It doesn’t let you feel about the size or importance of your expenses. It’s only later you realize what you have done. Not just that, sometimes small online expenses/purchases here and there mount to overspending. It’s not entirely your fault. Because spending money online is so easy and unnoticeable because ultimately it just changes some numbers on your screen. It doesn’t feel like you gave something that took so much effort to earn and save. On the other side, if you spend your money in cash, you might not have made or at least postponed that expensive purchase you made online so swiftly.
Stop using Credit Cards
I feel sad when I see people buying something using a credit card that their debit card otherwise wouldn’t have allowed. If this is you, stop immediately. It’s a trap that credit card companies want you to fall into so that they can make money off the interest they would earn on your purchase. If you are not able to get it, let me explain.
Since you bought something that cash in your bank account couldn’t afford so you would have definitely bought it on EMI. You made the bank happy because you are paying them interest. If you did not buy it on EMI and paid full then you might make the minimum payment for your credit card for that month as your bank balance isn’t enough to fully pay the bill. The bank is happy again as they would levy interest on the remaining bill payment every month until you pay it completely.
You won’t believe how much interest the bank charges on the remaining payment. A whopping 42% in a year. Forget the discounts and credit card rewards that pulled you into making that purchase.
It’s ironic that credit card as a product is designed for people who don’t need them. It is sold to people who should not even come close to it. Credit cards promote rampant spending behaviours luring people in the form of discounts, reward points and cashbacks. I would recommend sticking to debit cards so that you only spend what you can afford.
So these were some of the methods I followed in my life to become better at saving money and staying consistent at it too. I would highly recommend you cultivate some of these methods in your life, if not all, and see the results for yourself.
I would love to know if you have implemented any of the above strategies in your life and how they have worked for you. Also, please share any other strategies not covered in this article that you personally use that work wonders for you so that others could also benefit from them.
