How to save money? A simple guide

Now, with a decade of work experience coupled with multiple job jumps, A earns a respectable Rs 80,000 a month. However, she still suffers from the same problem. She is 30-years old but has no savings as Rs 80,000 a month is too little to survive on in a city like New Delhi or Mumbai, she claims.

Do you think that your salary vanishes by the third day of each month? Do you spend the last days of each month counting the decimal points of your bank balance? Do you wonder where did all your salary go when you just haven't bought any new clothes or a gadget or went partying every weekend?

If the anwer to the above three questions is a resounding 'yes' then continue reading. Otherwise, you are already a 'saver' and need not worry!

'A' started his career 10-years ago with a meagre starting salary of Rs 15000 per month. Post deductions and provident fund, etc, her 'in-hand' salary was a princely sum of Rs 11,000 per month. Naturally, she did not believe in saving back then given how less the money was and that she was just branching out. So she spent it all. Each day. Each month.

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Now, with a decade of work experience coupled with multiple job jumps, A earns a respectable Rs 80,000 a month. However, she still suffers from the same problem. She is 30-years old but has no savings as Rs 80,000 a month is too little to survive on in a city like New Delhi or Mumbai, she claims.

But an epiphany has struck.

She now has at least begun thinking of cutting on her wants and focus on her needs.

"How do I save money?" is a question that hounds her like credit card executives on missing a payment cycle.

Saving as a habit

Saving money for a rainy day is a habit that is difficult to inculcate especially today when there are so many distractions around.

Mobile phones do not last with us for more than a year and each new movie at the weekends have be seen even if tickets are priced at Rs 500 with a tub of popcorn at a similar price. That weekend clubbing is also necessary as 'winding down' is important after that stressful work week.

The question then is, how does one save money?

One simple method of saving money is not having the money on you.

Remember, A met her expenses and some more when she made Rs 11, 000 a month and she still manages with Rs 80,000 a month.

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Our wants grow with each paycheck and therein lies the mantra.

If you have Rs 11,000 at the beginning of each month then you will spend Rs 11,000 and if you have Rs 80,000 then that is the amount you will spend.

Your wants will magically calibrate to your salary each month and the vicicious cycle will continue till you decide to break it.

How to save money?

Building on A's experience, if she had invested in a mutual fund systematic investment plan (SIP) only Rs 500 from her Rs 11,000 salary each month, at the end of 10 years she would have put in Rs 60,000 but her total corpus would have been a cool Rs 1,20,000.

The same money at the end of 20 years would be Rs 5 lakh and Rs 32.5 lakh at the end of 35 years. With only Rs 500 each month, A would have gained Rs 32.5 lakh at 12% of expected rate of return in an SIP at her retirement nearly 35 years later.

Mutual funds, of course, are riskier as they are linked to stock markets who are unpredictable.

There are other options as well.

A higher saving in your monthly provident fund (PF) account gets an interest rate of over 8% currently.

Given that PF is government controlled, its rate of returns is always going to be higher than what markets can offer you.

A fixed deposit too can be a safer option as the returns are guaranteed.

If you go for an FD that guarantees you, for example, 6% interest on your money at the end of a stipulated time, then that is the sum you are going to get.

In short, your money grows faster with investments and there are multiple choices available.

But how to do this when the salary gets over within the first week?

Well, the answer is simple.

You do not spend the money you do not have. To be able to do this, you must make sure that your investments, be it SIP, PF, FD or a recurring deposit, etc are debited from your account as soon as your salary arrives.

Meanwhile, if you think you cannot do this because of your credit card then you must read this: