By Supriya Suri
Indians are known for being big savers which has helped them tide over many a financial crunch. However, due to the pandemic, household savings have taken a hit. According to the Reserve Bank of India (RBI), household financial savings rate fell to 8.1% of GDP in the quarter ending December 2020, down from 21% and 10.4% in the preceding two quarters, indicating how our spending has outpacing our savings.
Here are a few smart ways to curtail expenses while aiming for higher savings for better financial management.
Map household budget
Instead of budgeting your expenses and then working out your savings, try to plan it the other way round. Once you budget expenses, bifurcate them into immediate and deferrable categories. You cannot avoid urgent expenses, but deferrable ones are a matter of choice. Once you set the long-term objectives, set your investment target for each month. The residual cash should then be prioritised and spent wisely.
Budgeting entails understanding how much one earns, how much one spends, and formulating a strategy to spend less and save more. You can prioritise spending to achieve your goals after assessing income and costs. Although keeping records to account for every expenditure is a good idea, it isn’t for everyone. The 50-30-20 rule might be a viable option. Set aside 50% of the income for necessities (housing, utilities, insurance, food, clothes, taxes, and debt payments), 30% for wants (dining out, entertainment, and luxury), and 20% for savings. It requires a lot of self-control on one’s part to not squander the money set aside for savings.
Easy repayable spends
Another essential habit is to avoid getting into debt. Avoid use of credit card too much or on avoidable expenditure. Consider using credit cards for easy repayable costs, such as a small dinner or other spends that can be paid back within the interest-free period, thereby helping in maintaining a healthy credit score. You won’t have to worry about money at the end of the month if you use credit cards wisely. Avoid bank loans unless it is for creating an asset.
Saving money is the most fundamental and essential life skill and one needs to imbibe it early in life.
The writer is vice president, Customer Experience, Home Credit India