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Fed up with high expenses? Here are the 6 most effective ways to reduce your cost of living and increase your savings and investments.
The cost of living is basically how much money we need to live to maintain a certain standard of lifestyle at a particular time and place. This includes taking care of all the necessary expenditures like food, clothing, education, transportation, entertainment etc.
The cost of living varies among cities; therefore, a person's cost of living in one city should not be indiscriminately compared to another person's cost of living belonging to a different city.
Further, the cost of living also plays a vital role in our budgeting exercise. So, how to find our cost of living and what are the ways to reduce our cost of living and increase savings? Let’s find out!
How to Find Out Your Cost of Living?
Finding out our cost of living is relatively simple. We can use a cost of living calculator online to know the cost of living for any city. Further, a cost of living calculator also allows us to predict our expenditures in the future, keeping in mind inflation and other variances in expenditure.
How to Reduce Your Cost of Living?
If we can effectively reduce our living cost, then we can increase our savings and investment. Following are some of the ways that can be used to reduce our cost of living:
1. Track Your Spending
If we want to reduce our cost of living, it is essential to know where and how much we are spending. Therefore, firstly we need to track all our spending and bifurcate them under different heads. This can be healthcare, grocery, utility bills, eating out, entertainment etc.
This will give a clear picture of the current position of our finances, and we will know where exactly our money goes.
2. Save First, Spend Later
This is the thumb rule we should adopt in our financial life. What most people do is once they receive the income, they spend on their needs and desires and then save whatever is left (which in most cases is negligible).
However, what should be done is the exact opposite. Whenever we receive our income, we should first allocate a specific portion to saving and investing and then spend whatever is left. This ensures that we do not compromise on savings and investments.
If there is any shortfall, then saving first will ensure that we cut our cost of living and expenditure and not on our savings and investments.
3. Prepare A Budget
Budgeting is one of the most effective ways to control our spending. Once we track down all our expenses (as mentioned in the first point above), we get a rough idea of our expenses under each head. Now we can proceed to prepare a budget.
The budget will ensure that only a specific portion of our income is allocated to our expenses under each head. Further, we can follow the 50/30/20 rule. Per this rule, 50% of our income should go for meeting needs and necessities, 30% of it should go for wants and desires, and 20% should go towards savings and investments.
This ensures a proper allocation of our income and that all our requirements are met.
4. Go For Affordable Housing Options
Each city has different locations, and the cost of housing may vary among these locations. Housing constitutes a major chunk of our income, whether we are staying on rent or paying home loan EMIs. Therefore, to lower our cost of living, we can go for more affordable housing options.
We can even save money in high cost of living area by simply choosing the most affordable option that presents itself. This will ensure that one of our biggest expenses is well within our budget, helping us to cut household costs tremendously.
5. Avoid Debt
The debt trap is the worst financial place to be in. We keep purchasing on EMIs and pile up debt until one day, we realize that we have made some serious financial mistakes. The debt trap not only affects our budget but also dents our CIBIL score.
Once we are in deep debt and have taken loans from multiple sources, what follows is the skipping of EMIs and a consequent reduction of our CIBIL score. Things go worse when credit card debt enters the picture.
Credit card companies charge exorbitant interest on credit card debts that can range anywhere from 18% per annum to 36% per annum. Therefore, a good way out is to avoid debt as much as possible. However, if we are already in debt, we should start planning repayments as soon as possible.
We can begin with repaying high-interest debt like credit card bills, personal loans, business loans etc. This will help save a ton of interest costs. Further, if we have raised debt from multiple sources, then we can go for debt consolidation. For this, you can take a single debt and use the proceeds to repay all the smaller debts.
This will ensure that you only have one debt to repay and will help you avoid skipping EMIs.
6. Control Subscriptions and Utility Bills
We often automate our subscriptions for entertainment, OTTs, memberships etc. We don’t even realize how much we end up spending by automating our subscriptions. Therefore, we must remove or keep track of the automatic renewal of subscriptions. We should also ensure that we don't oversubscribe- just by following blindly what others are doing.
Another effective way to reduce monthly living costs is to cut down on our utility bills. This primarily includes electricity and gas bills. This will not only help us reduce expenses but also help in saving precious resources, i.e., electricity and gas.
In a Nutshell
If we proceed in a planned way, we can easily reduce our cost of living. All we need to do is take proper steps and cut unnecessary expenses. Simply following the above tips can help us reduce our regular living costs, and in no time, we will realize that our savings and investment portfolio has grown tremendously.
Further, if we invest our added savings (accumulated by cutting down our cost of living), we can also use this money for emergency spending. One of the best ways to invest and compound your savings is through digital gold. Jar allows you to automate your digital gold investments.
You can start investing with as low as Rs. 10. So start planning, reduce your cost of living and start investing with Jar now!
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