How to save money from salary?
Created on 17 Feb 2022
Wraps up in 6 Min
Read by 4.8k people
Updated on 01 Feb 2023
Recently, our in-house research team, Recipe conducted a survey on one lakh people regarding their money habits. The report says that one in every six people is an overspender. And Indians spend ₹2 out of ₹3 they earn. And 34% of Indians say, their salary doesn’t even last for 15 days.
While these numbers are scary, they also depict that we Indians, specifically, lack the required knowledge and tools to manage our finances. Shouldn’t we question ourselves that, why is it that most of us are broke even before the month hits its mid? Why is it that one of every two Indians is worried that they are not prepared with adequate funds in case of an unforeseen event.?
The money habits Indians have is shocking! You must read about them here.
The solution to all of our money problems lies in identifying and controlling our expenses. Today, we have broken the dos, don'ts and what-to-dos down for you.
How to Stop Spending Money
It might have happened quite a few times that even with the best intentions of saving money at the beginning of every month, you were unable to do it because something more important came up. You would justify the expenses saying it was unavoidable. But, were they really? And if they were, shouldn’t you be prepared for that well in advance?
It is said that to be able to save more, one needs to earn more. And it is true to a great extent. As disposable income rises, the expenses remain the same, so technically, people should save more money than they were before. But this is not how it is practised. As disposable income rises, the propensity to consume increases.
Propensity to consume means, when there is an increase in income or a proportion of the total income, people start to spend more on goods and services than to save. In contrast, is the concept of propensity to save. In this, with an increase in income, people put more money into their savings rather than spending it on goods.
The average propensity to consume is higher in the lower-income group of people compared to the high-income group, thus proving the point that “to save more, we need to earn more.”
To be able to save more and spend less, we must first identify the leakages that are present in our current budget plan. No one teaches this at school, but budgeting is such an essential part of managing our finances.
Psychology of overspending
The moment you see your wishlisted item on sale or an ‘almost sold out’ sign beeping in front of you, and there is this innate urge to buy it. This is how the marketing team plays with our head and let the customers believe that they are saving money through this sale. While in reality, these flash sales make people buy something they do not even need in the immediate future.
There is also the societal pressure to overspend on occasions such as dining out with family and friends, or your friends could be asking to go on a trip for a really long time and just can not say no no more.
The psychology of overspending relates back to our ability to rationally measure our needs vs wants and how well we are able to control them.
Learn to budget
We have an elaborated blog on the top 7 personal finance skills everyone should be aware of. The first step in it is to learn how to budget. It is done in the following steps-
Step 1: Know your income
Step 2: List all of your debts
Step 3: Calculate the fixed expenses
Step 4: Calculate the entertainment expenses
Step 5: Set a goal for savings
Step 6: Simple Maths
The spending triggers
Just budgeting is not enough, though. There are people with leak-proof budgets and they are still unable to control their expenses. This happens because we are only human, and sometimes there are some emotional and psychological triggers that scream to us for that one little pint of roasted coffee creme ice-cream of Baskin-Robbins. And you just can’t say deny yourself anymore.
There are moments when you are sad or low on energy, and it is in those moments that you feel the need to shop a little to comfort yourself. Instead, choose to be rational and go shopping when you are happy and have more energy to control those temptations. Identifying how your mood influences your spending behaviour is essential so that you are able to control your impulse purchases.
Identifying and removing/controlling these triggers will eliminate the chances of overspending.
How to track your spending?
In meditation, they teach that becoming aware of our surroundings and acknowledging them is the first step to achieving inner peace. So is the case with financial peace (freedom). Unless you are aware of your spending and you acknowledge the unjustified expenses, you will never be able to achieve the financial freedom you desire. Once you are entirely mindful, you will be in a position to make smarter decisions and will be able to cut back on those.
Some people do track their expenses, but only the big ones they make; like their EMIs, credit card bills, rent and grocery. But they often forget to keep a track of how many times they ordered food in, paid for the coffee, refuelled their vehicles, etc.
The best way to track all of these is to go cashless and make every payment through UPI. Every time you will enter the UPI pin, it will ring a bell in your head that ‘money is going out’. When you check your expenses every night, for a few nights, you will be able to segregate the essential and non-essential expenses and will eventually be able to cut back on those.
Setting short-term financial goals
A plan without a goal is just a wish. If you do not have a clear intention of why you are saving money, and for what are you making all those sacrifices, you will never be able to stick to them.
Having an attainable, quantified, short-term goal will incentivize you to control your expenses. For example, instead of deciding that you will not go out this weekend to party, determine that you will cut down your party expense from ₹5000 a month to ₹2000.
Making goals attainable is an essential part of this. If your one goal is unachievable, it will discourage you from following the next one and will create a chain reaction. Very soon, you will fall out of sticking to your short-term financial goals.
Follow a buying Checklist
Create a personalized buying checklist. And what do we mean by that? In this kalyug, where our minds are tricked into buying things we won’t ever need, it is crucial we have something that helps us in making decisions easier and not giving in to temptations. For this, follow the old school method of ticking things off a checklist. We could provide you with questions that a simple basic must-have checklist, and the rest is up to you to curate them according to your needs.
Do I really need this?
Do I need the item now, or can I wait?
Can I afford to pay for it?
How many hours of work does this cost?
What else is the item going to cost?
How often will I use this item?
Can I borrow it?
Am I getting the best deal?
What is the resale value?
How much can I build if I put it into savings?
Install an expense tracker app
What is the use of such evolved technology if you cannot exploit it to the best of your ability? There are apps like Walnut, Money View, Goodbudget, etc. that help you budget and track your expenses in real-time so that you always stay on top of it.
While all these apps just tell you how much of your expenses are going out of your pocket and to where, you need something that plans all of your finances so that you have a clear picture of your financial position. To have a clear picture of your financial position, you must know how much emergency funds you should have, if your insurance cover is appropriate or not, if your EMI load and debt burden is too much for you or not, and what is your spending habit like.
What if we tell you there is a place where you can calculate all of these? Recipe has all of these prosperity ingredients and so much more to help you manage your money.
The Bottom Line
Tomorrow is a brand new day that has never been touched. Read that again. How your life is gonna look like in a decade depends on all the things you do today. Shouldn’t we hustle a little more, spend a little less and save a little more to greet that future self of ours with a proud smile?
We leave you today with a lot of information and tips to manage your money better. Acting on it (or not) is your choice!
Save karke dekho, achha lagta hai!
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