How to Save Money – Secrets You Must Know
Our money saving secrets are simple, easy to implement and help you make substantial savings. Our focus is on tips that make substantial difference and help you save 40-60% and possibly much more. Such tips we call as secrets. For some of you, they may not sound great but once you implement them you will see big and long term savings that will change your financial situation.
There are some money saving tips that will save you 2-5% but not enough to make a fundamental difference to your financial situation. Plus, they could take so much of your time to implement them that they are not really practical. Such advise makes you penny wise and pound foolish.
Moreover, many people don’t know how to start saving, as this is not exactly told in school/college text books. If you are interested to save money by becoming financially intelligent, this article and others on this site will be vastly helpful.
Secret #1 – Pay yourself first!
Save by setting aside money for savings as soon as you get your salary. Rather than trying to stop spending, it is easier and more successful to prevent losing your savings. This also works off your positive energy – let us explain this. As soon as you get money at the start of the month first move a portion of the salary into another savings account – this money could be anywhere from 10% to 30% of your salary. You could also do an automatic payment to a recurring deposit.
The secret here is – the human motivation to not lose is up to 5 times stronger than the motivation to win. Once you make the commitment to pay yourself first – you are now working with the stronger human motivation to not lose money (that is working in your favor to help you save money). When you have set aside money as soon as you get your salary, and when you try to take a portion of that to buy something – you will question yourself strongly – is this really required? Because now you are taking away money from your wealth to pay something that may not be required and will reduce your hard earned savings.
Secret #2: Shop intelligently
Every person has genuine needs that require shopping. So you can never stop shopping, you need to shop intelligently. From small things like groceries to big ticket items like home, car and vacations – shopping intelligently helps save a lot of money without depriving yourself of any genuine needs.
When somebody needs something then they buy. However, some people also buy when they don’t require or buy much more than required. Some people also buy for status, for experience, or to make them feel superior. Purchasing makes you feel good about yourself for a few hours. People often shop to feel better about themselves; in such cases of shopping addiction, they find it difficult to save. So avoid shopping addiction to save money.
Secret #3: Understand the difference between fancy lifestyle and being rich
One of the major reasons that many people don’t save enough is because they do not understand the difference between a fancy lifestyle and being rich. Most people believe they need to increase their spending habits and have a lavish lifestyle once they have a little surplus. After all, they could not afford some things earlier and now that they have the surplus, why not buy the fancy vacation, car or house.
Wealth is the number of years you can live without earning a single rupee based on your current living expenses. If your living expenses decrease, then your current savings will make you wealthier. Similarly, if your living expenses increase, then you become less wealthy (rich).
While the currently wealthy, who have a fancy lifestyle catch your attention. Many of them, if they get too fancy may get less and less rich with each passing month. While the steadily rich, live below their means and avoid unnecessary fanciful lifestyle.
For example, while many small time entrepreneurs move to expensive cars like Mercedes Benz, Audi and BMWs. Narayan Murthy of Infosys fame with a net worth of Rs.7,000 crores only uses a Skoda. While Azim Premji of Wipro whose net worth is 60,000 crores drives a Toyota Corolla.
When you cannot afford something, not owning makes it feel lot worse emotionally. However, when you can afford something by paying full amount in cash, you do not feel bad. Because deep down you know you can buy that item whenever you want, you are making a conscious choice to not buy.
Secret #4: Open a separate account for your “saved money”
It is always better to have another savings account for your “saved money”. So you know this account is only for savings and you will never use this money for routine expenses. If you keep your saved money in your regular savings account, you will have to spend too much time reconciling the accounts to find how much money you have saved and how much money is towards this month’s expenses.
Preferably, you should not have a debit card or ATM card for this “saved money” savings account. If at all you need the money – you can use online banking to transfer from your regular bank account to this designated “save money” bank account.
If you do not have a separate account, you will not know how much balance you have for regular expenses like rent, phone bill, electricity bill etc. and how much money you have set aside for savings. As a result, you are very likely to use up money from what you have saved for making unnecessary expenses because you think you have not spend the full amount from this month’s salary or budget.
What next?
Now you are aware of the major secrets of saving money. Remember, the quote “to know and not to act is not to know”. So now you have to make the commitment to use these secrets to save lots of money. As much as your current income will allow. One of the abilities of self-made rich people is their ability to save aggressively. If you build a habit of saving money, you will most likely build a lot of wealth.
Now that brings us to one thought that may be lingering in your mind. Is it worth doing? I mean shopping discipline and avoiding fancy lifestyle looks like avoiding fun you may think. One of the things that people with lots of saving have is ‘peace of mind’ – the ability to be not stressed by monetary issues. While those who are not financially intelligent, are always stressed by money. This is many times, even after having a very good income.
So finally, the big benefit of saving and living a financially sensible lifestyle is about peace of mind, reduced anxiety that allows you to enjoy the many benefits of living life.
We strongly suggest you to read:
Financial Intelligence – How to Organize Expenses
Financial Intelligence – Understand Your Spending
Spending Analysis and Annual Expense Categorization
Keertana says:
August 13th, 2011
3:19 pm
Solid advise. Thank you very much!
AN Murthy says:
November 13th, 2011
6:23 am
Most other sites are focusing on trivial things regards savings. That will not lead to much impact. Many people save on one thing to splurge on another item. The above article focuses on fundamentals. Appreciate your article, it is helpful to suggest to others