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Financial Planning 6: Analysis of expenses and boosting savings.

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Too much has been already said in various blogs about analysing expenses and boosting savings. It only proves the importance of this topic in personal finance.

The most important factor that stands in the way of saving is expenses – we spend a lot on various things without thinking too much about the impact it has on savings. What one can do is to prepare a chart or a list of monthly expenses, broadly classifying them into some of these heads:

Personal expenses: expenses incurred for buying personal things like clothes, watches and phone

Car and fuel: expenses incurred to maintain your vehicle including the EMIs paid.

Medical: Expenses incurred for maintaining health.

Servants / maids: expenses incurred for maintaining maids, gardeners and helpers.

Household: expenses incurred for buying groceries etc..

Kids: expenses incurred on various items – shopping for kids, school fee, sports, tuition etc..

Repair and maintenance: expenses incurred for maintaining the flat of house you won.

Rent and other EMIs – Monthly commitments on rent. EMI etc…

The above analysis will give you a first-hand idea about how much you spend on various heads. It will also throw light on where you’re spending more and if there’s any scope for reducing or controlling some of these expenses. The magic process to boost savings lies in efficiently controlling your monthly expenses outflow.

It’s a hare and tortoise game!

Like the hare in our old story, we all start off with a lot of enthusiasm and energy, only to stop in between.

Boosting savings is a hare and tortoise game and you better be the tortoise who made sure that every single step is taken consistently and accurately till the end of the game. Boosting savings is all about consistently following the budgets set and saving little by little. In the long run, it’s going to make a lot of difference in your finances.

Some  tips to boost savings:

Move to high interest bearing savings accounts: this makes sure that all money you have in your account keeps earning interest at the highest rate possible even when you forget to lock in FDs.

Keep locking funds in FDs: however small be the amount, keep locking the funds in FDs so that you can accumulate a decent fund at the year end. The accumulated funds can be utilised for investments later. Even if it’s small sum of 5000, removing the funds from your savings account helps in accumulating funds faster.

Join a chit fund : you can also move a bit of money into chit funds . the advantage is that in case you win the bid , you’d get a lumpsum  in your hands which can be utilised for kicking of investments. In case you don’t , you pay monthly instalments only at a discount and hence, at maturity it’s as good as putting some money in FDs. One factor that you might want to consider here is the creditworthiness of the institution running the chit business.

Start a small investment in SIP– Start it small. You can even invest Rs 500 minimum in mutual funds. Rs 500 short your savings account is not going to make any difference to your monthly budget. We do waste a lot of money every month in various forms.

Decide to save 10% more every month – After charting the expenses for two or three months , identify some expenses that can be controlled and kick off a challenge to save 10% more.  

Do the 30 day Wait before you start the spree – easy EMIs have made us spend like crazy. We spend on wants and needs without distinguishing between the two. Whenever you feel like buying expensive things which are not essentials, try to follow the 30 day waiting rule. Wait for 30 days and see if the urge remains! If it’s still bothering you , go ahead and buy it. If not , you just saved some money.

Do not buy to de-stress – when stressed out , some people spend a lot doing things which their heart wants to do. It may give a temporary relief but the aftereffect of even more high spending can be disastrous.

Budgets   – have a budget for everything. Do not spend over your budget, whatever it may be.

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