You must have heard of legendary investors like Warren Buffet or Charlie Munger. After all, they are self-made billionaires who have used their financial acumen to generate substantial wealth for themselves and their investors. Although, not everyone has the same level of talent, it doesn’t mean that we can’t save enough money in our lifetime to secure our lives.
But, before we make investments that can grow our wealth and secure our future, we need to make wise decisions with the money we already have. Ultimately, maximizing savings is an important first step that ensures you can invest enough and secure your financial future.
In this blog, we will discuss 5 money habits that can help boost your savings so that you are in a better position to make investments that can grow your wealth over the long term.
keep track of your expenses
Your savings is what is left of your monthly income after taking care of all your expenses. Therefore, keeping track of your expenses and cutting down on unnecessary expenses can help you save more and increase your savings. One way to do this is by creating a budget. Creating a budget will give you a clear understanding of your current expenses and help you figure out which expenses can be reduced and which can be eliminated.
However, mere budgeting is not enough. You also need to make sure that you stick to your budget by tracking your expenses. By tracking your expenses, you can reduce the potential for overspending, which will help you stay on track to reach your savings goals.
reduce your debt
It is very easy these days to qualify for various loans especially if you have a high credit score and regular income. While some loans, such as home loans, can be beneficial because they help you build an asset, others, such as personal loans or credit card debt, can adversely affect your ability to save.
This is mainly because of the high interest rates applied to unpaid credit card debt and outstanding personal loans. In the case of personal loans, interest rates can easily be as high as 18% p.a., while outstanding credit card debt can have an interest rate of 36% p.a. or even higher.
To understand how these high interest charges can affect your ability to save, let’s consider an example. Suppose you have an outstanding credit card loan of Rs 1 lakh and the interest rate is 36% per annum, then you will have to pay Rs 36,000 as interest every year to keep the outstanding credit card debt. This interest payment is money out of your pocket, and it will reduce your ability to save. Therefore, if you reduce your debt, you can significantly reduce your interest payments and end up with more savings in the process.
buy enough health insurance
We all get sick from time to time. While most you and your family members may be lucky enough to get better with minimal medication and bed rest, sometimes, hospitalization may be unavoidable. Medical bills can drain your savings significantly if you don’t plan for them in advance. So to manage medical emergencies, you should buy a comprehensive health insurance plan that covers all the members of your family.
A comprehensive health plan can thus serve as a safety net that ensures that you are prepared for various medical emergencies without draining your savings. To make sure you and your family members have adequate health insurance, consider purchasing a separate health plan, even if you are covered by a group health insurance plan provided by your employer.
automate your savings
Most of us have a tendency to spend first and then set aside the rest as savings. However, this approach can sometimes cost more and affect your ability to save. To prevent this you should first save and then use the rest to meet your expenses. One way to achieve this is to automate your savings by setting up standing instructions on your salary account. This way, when your salary is credited, your savings are automatically transferred to a designated bank account or investment of your choice before you have the opportunity to spend it.
Besides increasing your savings, there is also a psychological component to automating your savings. When your watch increases your savings, it will act as an incentive to reduce your expenses. This will give a huge boost to your savings in the long run.
maximize tax deduction
Taxes are a reality for all who have income. While it may not be possible to eliminate tax payments, there are several ways you can reduce your tax expense. There are two major ways to maximize your tax deductions — declaring all tax deductions that may apply on your income tax return and making tax-saving investments to the extent permissible. For example, certain expenses like your life insurance and health insurance premiums are eligible for tax deduction benefits. Therefore, using your savings to buy this type of insurance offers a dual benefit – protecting your finances as well as reducing your tax expense.
Similarly, if you use your money to invest in tax saving instruments like Equity Linked Savings Scheme (ELSS), Employees’ Provident Fund (EPF), Public Provident Fund (PPF), etc., you can increase your savings. can. These investments are eligible for cumulative tax deduction benefit of up to Rs 1.5 lakh in a financial year under section 80C.
These investments provide two-fold benefits. The first benefit is less tax outgo. The second benefit is in the form of returns that you will get from these investments. The returns from these tax-saving investments are much higher than from a savings account. So by making these investments you will be able to grow your savings faster.
Many of us get frustrated that our savings grow slowly initially, which is a reality for all. But if you keep at it and add a little bit to your savings over time, you can benefit from compounding and grow your savings pretty quickly over time. These money habits will help you stay the course and improve your chances of reaching your savings goals, whatever they may be.