How to save more when monthly expenses keep increasing? Sounds familiar?
This is a common problem. You intend to save more but aren’t able to. You just don’t know where the money goes.
If your inflows are constant per month, how you manage expenses becomes the key to saving and saving more.
Income – Expenses = Cashflow
You struggle to minimise expenses because lifestyle can overcome your intention to.
Need for instant gratification
Today, we look for instant gratification. Waiting is boring. The famous Marshmallow test of patience applies – when the reward was doubled in exchange for waiting, only 30% of kids waited to get two marshmallows.
We want to feel good now. When you set aside money, you delay happiness. To most, that’s less attractive.
The need to look good is high. Spending happens because of the need to keep up with others. It adversely affects the ability to be prudent and save.
The Law of Marginal Utility states that satisfaction levels go down as you consume more. As satisfaction levels fall, you want to consume more in order to increase satisfaction. This makes you spend more to be happier, which hurts your ability to save.
Lifestyle expenses are tricky and sticky. It’s easy to increase the standard of living. It’s difficult to go back to a more careful way to live. In good times, people live better. But they find it hard to dial down expenses when incomes contract. We covered this topic in detail in our earlier blog.
Invest in assets – not liabilities
If you examine your bank and credit card statements, you will realise that many expenses happen unmindfully. For example – idle Demat account charges, multiple credit cards, numerous bank accounts, unused subscriptions, unnecessary internet plans, and the like. We call these Leakages because they drain your ability to save. Leakages should be investigated and fixed. Focus only on buying things that offer you maximum enjoyment.
Ways to handle cashflows smartly
Be frugal. Only spend on what matters deeply to you. Question before you buy. Think before you leap. Most of all, don’t do it because others are doing. If you buy things you don’t need, you won’t have money to buy things you want.
Prioritise. Set goals. Invest in goals. Make goal-based investments.
If you have a spouse or family, take spending and investment decisions jointly. Two heads are better than one. They help broaden your vision.
Budgeting is boring, but critical. Budgeting is nothing but assessing expense allocations. If you earn Rs. 100, thumb rule could be to assign 40% to Living expenses, 30% to EMI, and 30% to Investments.
Expect a life with ups and downs. Plan for it. Save for it. Smart people do this and know the value of nurturing an emergency funds.
The bottom line
Finally, if you investigate your priorities, goals, and cash flow in an integrated manner, it’s eminently possible to save more. To do this regularly and we’ll, it helps to seek guidance from a trustworthy and informed financial planner.