How to save money?

Tips for ensuring you have enough money in times of emergencies

Know how to priortize
Below are the steps you can take, to ensure that you have cash when you require it.

> To start with, stash aside 3-4 months worth of expenses in a fixed deposit or a liquid fund
This will act as an emergency corpus and will help you tide over any contingencies that
may arise. A medical emergency or a loss of job may come unannounced and if you have
some surplus, it will help you handle the situation well until you are back on your feet

> Insure the risk to your life

No amount of planning or investing will work unless you have adequately covered the risks you are exposed to. Most people take the risk to life quite lightly, which is the biggest fallacy. Assess your life insurance need and opt for a term plan to cover the risk. Take a medical cover for self and family apart from the one provided by your employer. Employer cover will not be available when you need it the most and hence when you are still young and healthy, take a personal medical cover and keep increasing it as your grow older. A Rs 5 lakh cover may be sufficient for an individual today but 20 years down the line, it may not be worth much.Get a personal accident cover to cover yourself against disability caused by any accident

A life insurance works only on death and medical insurance covers only hospitalization. If a person cannot resume work on account of disability, personal accident insurance is the only policy that will come to rescue. This is a cheap policy with great value.

> Prepare a budget for your expenses

Your ability to save would determine how your future would look like. In order to save, you need to have complete control over how you spend. In the age of smartphones and tablets, this is the easiest thing to do and is no more the cumbersome task it used to be. Keeping a budget and tracking expenses against it will help you know your spending and in turn help your savings.

Change your equation from ‘Income – Expenses = Savings’ to ‘Income – Savings = Expenses’. People often say that they have nothing left at the end of the month to save. If savings happen at the beginning of the month itself, you would automatically keep tab on your expenses depending on your surpluses. Start small if you think it is not possible and you would be amazed at how addictive savings can be.

> Never run a credit card debt

A credit card may be a huge convenience but if not used prudently, it can hurt your pocket much more than you can imagine. A credit card is the most expensive form of debt with interest rates as high as 24-36 per cent. Plan your big-ticket expenses in advance or opt for a personal loan if there is no other choice.

> Go easy on loans

Access to credit has become quite easy today and hence it is no surprise if you are sitting on multiple loans, however small they may be. While you may have access to the credit, remember that a large number of loans or high frequency of taking loans may impact your credit score and your ability to seek additional credit. Taking a personal loan to buy a piece of land or for interiors of your house may not be the wisest thing to do. While home loans and car loans are acceptable, they too should be within limits.

Only buy those investment products that you truly understand If you cannot decipher how a product works or what it does, steer clear of it. That is not to say that one must not make an effort to understand different kinds of investment products, but fact remains that “keep it simple” strategy always works. Few simple things done right can help you achieve more than chasing high-risk high return products that you don’t understand.

> Track your investments periodically

It is important to review your portfolio once a quarter or once in six months to weed out any non-performers or to correct your overall asset allocation. Seek help of a professional if you find this cumbersome to do. Nowadays there are various money management software, which can help you track your investment portfolio.

> Align your investments with your goals

All of us have certain important financial goals in life. They could range from buying a property, children education and retirement to even having regular vacations or building a holiday home. This year, put your goals in black and white and assess if the money you are investing will help you in achieving your goals. Blindly chasing returns or investing in the flavor of the season may not help you get to your destination.

> Reduce your number of bank accounts and credit cards

People often have too many bank accounts and equally large number of credit cards. Two bank accounts are mostly sufficient and so are two credit cards. Not only will it allow better control over your money, it would also be much easier to manage.

> Declare your tax liabilities correctly and pay your taxes on time

Evading taxes may land you in trouble even if it is on account of ignorance or oversight. A lot of salaried employees conveniently choose to not show any other heads of income such as interest and rental income. Given the advanced technology where everything is linked, it is not difficult to find out if someone is purposely evading tax. Seek the help of a tax consultant if required and ensure that you are always on the right side of law.

> Seek the help of a personal finance professional

If managing finances is not your cup of tea or you don't have the time, hire a professional to do the job. There are different kinds of services available in the market at different costs to suit your pocket. If you are working hard to earn money, your money should also work as hard as you to help you achieve your goals in life. You may more than compensate for the fees of the professional by getting the right advice at the right time.

Yasir Sulaiman

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