Basics of Investment - Savings

In the process of Investment, we have understood that we Income money and will fulfill our needs and wants by managing the Expenses. Calculation of Savings allows us to understand whether we are ready for investment or not.

If we think in simple way, Savings is the surplus amount of our income after calculating all the expenses for a particular time period. For example; 

Monthly Savings = Monthly Income – Monthly Expenses

Savings may vary from month to month, but if we track this for some consecutive months we will get a rough estimate about our monthly savings. And doing this is the first step of starting Investment journey. After that, if you see your Savings is in positive number, then only you can think about Investment. Else your first goal should be to increase the Income and to minimize the Expense so that Savings become maximum and Investment can be done with that savings. 

Let us discuss some ways to save and manage your money efficiently. 

1. Save Money by Increasing Income 

• Creating a Passive Income – Do not depend on only one source of income. Make your free time to generate passive income as well. If you love photography, try selling photos on websites, or if you find yourself writing, try to start a blog or try to publish books. If you are interested in video editing, create YouTube channel. These will act as a source of your passive income.

• Selling Old Stuffs – You can save money while purchasing new clothes, housewares, and electronics by selling the old ones. There are many places to sell unwanted items online, like eBay, Facebook Marketplace, Olx etc. You just need to identify the item which is not being used for long time or for which you are going to purchase a new replacement. 

• Rent Out a Property – If you have extra rooms in your house or have multiple houses / parking areas, you can think of giving them on rent to generate monthly rental income. 

• Increasing Active Income – If you are a salaried person, do not stick to one job during the initial years of your carrier. Try to learn new skills related to your work field and try to get better opportunities with higher salaries. 

2. Save Money by Managing Expenses 

• Minimize Your Utility Bills – Try to use the daily utilities in an efficient way. For example – turn off the switch of the electrical appliances when not in use, minimize the waste of water and cooking gas etc. 

• Plan to do Major Purchase during Sale – Now days there are many sale period offered by companies like Flipkart, Amazon where you can get products in discounted price. Try to buy products at that time. Apart from that, during year end, the sales representatives need to meet their year-end sales quotas and you can get great discount on big buys like Car or Home Appliances. Try to utilize these periods.

• Use Discount Coupons – There are lots of discount coupons provided by companies while purchasing products, paying utility bills, ticket booking etc. Utilize those to decrease your expenses. 

• Plan Your Groceries – Try to estimate your expenses for groceries at the beginning of month and bring those from supermarket at a time rather buying from local store every day. For example – if you need 10 Kg Rice in a month, rather buying small quantities multiple times, buy at a time. As the quantity is large, you will get more discount. 

• Reduce Daily Dine Out Habit – Try to cook and eat at home every day to reduce the expenses. While you eat at restaurant, apart from food cost you pay for tax and ambiance also. Try to cook new recipes or set up a picnic at home only. This will improve your physical health along with financial health. Definitely you can have the fun of eating outside once or twice in a month. But don’t make this a habit.  

• Take Public Transportation - Try to replace your own drive at least once or twice a week. This will save your money on car petrol and will reduce car maintenance cost to some extent.

3. Save Money by Other Methods 

• Utilize your Credit Cards Smartly – Credit cards are one of the best way to manage your expenses if you are using it smartly. Use it as per your credit limit and always pay the dues before time to save penalties. This will improve your credit score. Also utilize the reward points wisely. 

• Avoid Credit Cards if you are not Smart enough to use - Credit cards help you avoid the pain of purchase with the cash you have. Which may cause you to spend more. If you cannot control yourself from stopping this, avoid credit cards. Keep cash with you or keep limited cash in one account from where you do your expenses. With this you will become more aware of what you’re spending. 

• Calculate the expense by Hours – Before purchasing something think if that is worth of buying. Try to calculate the cost in terms of how long it takes you to make that money based on your income. This will help you to understand the true value of your money. For example – you calculate that your hourly income is Rs. 10 and you are purchasing something worth Rs. 120. That means it will take 12 Hours of your work effort to cover the expense. 

Once you will calculate your Income, Expense and Savings – and your Savings will be in positive number - you are ready for Investment. 

Parent Topic: Basics of Investment

Related Topic: Income, Expenses