The year that is upon us has bestowed us with vivid experiences. Among many, inflation is the most prominent picture this year, and the need to save is probably more important now than ever.
Good financial housekeeping will require a solid savings plan. And saving money might sound easy, but anyone who has actually tried those shoes knows that, in reality, it is a tricky job without a proper plan.
In this article, we are going to look at some of the most important steps to building a savings habit.
Track your expenses
It is hard to direct your money when you are not aware of where all of it is going. Which is why you should go through your bank statement and take account of all your credit and debit card purchases. For better financial hygiene, you have to track your unhealthy expenses. It is time to find some more cost effective and more fulfilling habits.
Tracking expenses is a good way to figure out where you need to make some cuts in your lifestyle. For example, if you are ordering food on a daily basis, now is the time to cut back and start relying on healthier and more cost effective ways. Again, if you are juggling too many OTT subscriptions every month, you can easily cut down and save yourself some cash. Also, check your grocery shopping list. Are you sticking to the requirements or are there multiple impulsive purchases?
Start an emergency fund
You can’t avoid the fact that the economy is in its most volatile state when the value of the rupee is going down and prices of basic commodities are going up. We are in an emergency situation, and to not have an emergency fund is a reckless decision.
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In life, you can count on death, taxes, and unexpected financial emergencies. You may have heard that the recommended three to six months’ worth of savings stacked aside in an emergency fund is mandatory. And it’s easier to say than to do. So start with achievable goals.
Maybe you could set aside a minimum of Rs.500 every week and slowly increase the number. Now, this will not be enough to pull you out of some emergency situation, but you will get into the groove.
Not sure where to keep this money? One of the best options is to open a zero balance savings account. A digital savings account can be opened from anywhere, and the best part is that a zero balance account requires no maintenance obligations. So you don’t have to worry about maintenance charges and other hidden charges.
The additional benefit is that you earn interest on every rupee saved in the account and are free to withdraw it whenever required. Every bit counts, as long as you follow the rule of an emergency fund: never use the money lying in an emergency fund unless you are facing an emergency.
Strategies your debt repayments
Once you have a working budget in hand, you may want to focus on debt repayments. Your credit card bills and other interest payments drain you from achieving your financial goals. So, it is better to take your debt seriously and clear it.
The snowball method and the avalanche method are two of the most common tactics when it comes to debt repayment. In the snowball method, you pick the smallest of all your loans and pay it off as quickly as possible. Then you move to the next lowest loan. The snowball method is a bottom-up method of dealing with debts. The snowball method is very satisfying in nature as you get the gratification of paying off the loan account sooner.
In the avalanche method, along with the minimum monthly payment, you set aside an additional payment towards your high interest debts and try to pay them off as quickly as you can afford.
We talked about some basic tips on how to lay the foundation of your savings and spend money more wisely.
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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.