Here are 5 personal finance tips for beginners to start saving money smartly.
Savings are always tough, especially when you are new to them and are beginning your savings journey. Chances are that you’re either a student, or someone who has just started to earn, and you’re low on cash after your expenses even without saving some money.
So putting some money aside regularly in this state sounds pretty much impossible. Right? Wrong! You can start saving money no matter how much you earn or how much your expenses are.
Let’s clear a myth about savings right away: savings can be effective even if you don’t save a huge chunk of your salary or pocket money. You can save small amounts, and as long as you do it regularly with discipline, your savings pot will surely add up!
Here are a few personal finance tips that will help you put aside money regularly, even if you aren’t able to save a lot in one go!
1. Think long term
Life throws many significant events our way, and if you are young, a lot of them lie ahead of you. These are events like your marriage, your children’s education, their marriages, and eventually your retirement. All of these have one thing in common: they all require large sums of money.
This may seem like a lot, but if you build a saving habit right from the beginning of your career, then you will have more than enough finances to pay for any of these big events.
Thinking about these events so early might not make immediate sense to you, but a goal that is distant in the future will also help you stay disciplined. It will deter you from breaking your savings pot for impulsive purchases.
2. Differentiate between needs and wants
Recognizing and being able to differentiate between your needs and wants is probably the most important skill in personal budgeting. It’s also very simple.
Needs, as the word suggests, are things that you cannot live without, such as food, shelter, and water. Nowadays, the ‘needs’ umbrella can be a bit larger, including house rents and grocery bills but also commute costs, house-help salaries, internet subscriptions etc.
Wants, on the other hand, are things that can improve the quality of your life, but aren’t essentials. These can be things like a Netflix subscription, eating out, or new headphones.
Needless to say, after a basic level, everyone’s wants and needs will differ. For some, taking a holiday every month may be a need, while for others it may not.
Figure out what your wants and needs are, and then start to categorize every spend you make into these buckets. After some time, you can analyse where you’re spending more than you should, and cut costs accordingly.
3. Pay yourself first
Does this sound familiar? You just got your salary, and you decide to pay off your bills first. You may think that this is a smart move, but here’s why it isn’t: after paying bills, rent etc., it is likely that you will have very less money left.
And you will want to spend this remaining money on your various wants and pleasures, such as eating out, going to a movie, buying clothes etc. The last thing you would want to do with this money is to save it.
There is a way to get out of this cycle, though. The trick is to pay yourself first. What does that mean, though? When you next get your income, try this: put some money aside in another account before paying your bills.
Pay your bills after this, and then you can spend the remaining money on your wants. This may be tough at first, but making this into a habit will really pay off in the long term. Gradually, putting aside money as soon as you get your income will become second nature.
4. Have one non-spend day a week
This is a little tough to pull off if you’re a working individual, but if you can, it is very satisfactory. Try and have one day in the week where you spend no money at all.
If you’re a student or working professional, this could be on a Saturday where you stay at home, cook your own food, and spend time with yourself, instead of stepping outside or ordering food.
Once you do this, you’ll realize two things: first, how hard it is in today’s world not to spend any money, and second, how satisfying it can be. Once this becomes a habit, you’ll value money more and be more careful with it.
5. Invest your money
Remember how your life will have several big events which you’ll need to have large sums of money for? Well, just saving won’t help you gather that much money. You’ll need to invest too.
If you just save, the money you accumulate will slowly lose its value because of inflation. If you invest, however, your money will make more money, and beat inflation. If you want to know more about inflation’s effect on your investments, read this.
When it comes to investments with stability over longer periods of time, we recommend Gold. Gold is always in demand, and has historically given more stable returns than any other investment. If you wish to learn more about why gold is a good investment, check out this article.
All these tips will help you get into the habit of saving at regular intervals, be it daily or monthly. Even if you follow one of these religiously, you’ll find that you can comfortably tackle all financial challenges life throws your way.