There are numerous ways to save money and these can be divided into groups, such as different ways of saving money on groceries, shopping trips, utility bills or entertainment. Today we talk specifically about saving money using financial tools and by making certain financial decisions. This phrase sounds a bit technical, but all it covers are different ways you can use banking services to save money and budgeting your income. So let’s get started!
Personal finance decision # 1: Don’t withdraw your entire salary from the bank
This is probably the easiest way to save money, and it is the same as our forefathers, who lived in an age without bank account, deciding not to spend their entire income. These days, almost everyone’s monthly income goes straight to the bank. People usually expend their incomes plastic money in the developed world, but in many parts of the world, account holders withdraw cash for each week or two weeks.
Whatever the case, try and remember how much money you have actually withdrawn from your salary account (usually a current account) over the course of a month, then simply go ahead and ensure around 10% (or more) of your salary is leftover each month as an addition to your previous month’s balance.
This way, regardless of whether you splurged your money on luxury items or frugally thought out every purchase, you know that your savings are increasing.
Increase your savings… Credit: pixabay.com
Personal finance decision #2: Open a savings bank account
Granted, the previous method isn’t the best way to ensure your savings go up each month. What if you simply forget? A way better option is to approach a bank and open up a savings account. You typically have two basic options:
a. Long duration term deposits
You deposit your money for 5 years or more (e.g. a 10 year term deposit) and in return for your money, the bank pays you the highest margin on your investment. However, many long term money deposits have restrictions on early withdrawal of money and also have a minimum threshold that you may not be able to meet, in which case, you can opt for a…
b. Regular savings account
With a much lower minimum threshold and fewer restrictions on withdrawing money, you can simply add small amounts of money into a regular savings account as and when you want. The return on your assets will be minimal, but at least the funds get to accumulate through your own saving efforts over time. This may not be much, but it is better than nothing. And the earlier you set one up, even if the savings account if for your young children (as discussed on our blog earlier) the better.
Personal finance decision #3: Save first, spend later
Now that you have determined that you will save a portion of your income, you can go about the job in two ways:
a. Spend first, save later
Spend whatever you want from your monthly income and save the leftover money. This way, your expenses come first and your savings come in second because they are simply the remainder of your salary towards the end of the month. In some cases, your monthly savings could be a lot and in some cases, it could be very little, depending on your month’s expenses.
b. Save first, spend later
Take out a portion of your monthly income, put it in the savings account and vow to spend the rest of the month on the remaining salary. This way, you need not worry about not meeting your saving goals because at the start of the month, you set aside a portion of your income, say 20% or $2,000 per month. This really does help keep a lid on your spending and forces you to stick to your savings goals.
Personal finance decision #4: Budgeting your savings
If you follow the second option in the last point, which is ‘save first, spend later’, then another connected financial tool your monthly budget. When going through the budgeting process, set a minimum savings limit before you account for all the expenses you intend to incur during the time period. If you still have leftover income at the end of the month, put that away into your savings account. Again, this process helps you limit your wasteful expenditures and improves your savings account balance.
Related: 4 easy steps to setting up a monthly budget with the family
Personal finance decision # 5: Stay away from debt
This point could not be simpler. Even if you substantially increase your monthly savings or over-achieve your savings target, your assets will be undercut if you take on debt to finance your expenses. It will not make a positive difference to you if you save money, yet end up paying additional sums of money to return the loan principal and interest fees. No matter how much you earn, you cannot increase the value of your assets, or be financially independent and secure if you do not spend less than your earn, and that entails staying away from debt.
Bonus Tip 1: Use credit cards wisely
Although credit cards get blamed for high levels of personal debt, proper use of this form of plastic money doesn’t always deplete the value of your assets. In fact, credit cards, when used wisely, can offer significant financial benefits, in the form of frequent flyer miles that you get when you use travel-friendly credit card, or discounts on online shopping offered on specific credit card deals.
You also need to use credit cards to build a credit history, because a good credit score will result in lower interest charges in case you ever do need to borrow money for an emergency.
Just be sure to pay back the entire outstanding balance (i.e. credit card debts) before the end of the month so you do not accumulate interest charges, which are pretty high on such short term consumer loans.
Bonus tip #2: Balance transfer your credit card debt to save interest payments
If you already happen to be surrounded by credit card debt with high interest rates, you may find it difficult to meet repayment schedules as you struggle to stick to your budget. With no ending in sight, you may get some respite if you apply for a balance transfer to another credit card for a small fee. The particulars of such deals differ from company to company, but the basics are the same:
- You get all your credit card debts (outstanding balance on different credit cards) transferred to a single, new credit card, and as the old ones are now ‘empty’ you need no pay anything to those banks.
- You will be charged 0% interest rates, if not very low ‘transfer rates’, but only for a while, maybe a year or two. During that period, you simply need to pay back your debt, without any (or with minimal) interest rates, and it is wisest to hit that debt repayment schedule with all the money you can afford to set aside. This is like an interest-free loan, which is something this blog has written about before, so make the most of this zero-interest loan.
- After the low-rate 0% interest rate period expires, you will be charged a high interest again and sometimes this new interest rate (could be 18% or more) could be greater than the rate you were dealing with before the balance transfer of your credit card debt. You may be tempted to think you could easily apply for a new balance transfer to another low-interest or 0% interest rate card, but this can damage your credit score (read related article about building up your credit score).
That’s it for now. Do you have any other financial decisions you wish to share that can help people save money? Or some other financial tools?
Related articles on saving money:
6 Ways to Reduce Your Entertainment Expenses
7 Ways to Cut Your Medical Bill – Frugal Health Management
5 Ways to Reduce Your Utility Bills
8 Ways to Reduce Your Food Expenses and Save Money
9 Ways to Save Money On Shopping Trips
5 Tips To Save Money Before Your Vacation Begins
4 Ways to Save Money on Real Estate
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