Many of us have made silly errors in our early financial lives to not have done the right things to save money in India. We think some of the biggest mistakes people make are around not understanding and using concepts like inflation, compounding, security.
Your 5 tips to save money in India
- Set a Savings budget
- Get a Credit Card and use it wisely
- Understand inflation
- Get your Health Insurance
- Get a term policy
Set a savings budget
This is the antithesis of making a spend budget. A savings budget is basically an allotment of a certain % of one’s monthly take-home income towards savings. For the case I am about to make, let’s assume 5% savings rate beyond inflation which is a reasonable target possible with many different financial instruments in India. Based on this assumption, if one saves 65% of their annual income, they will have enough money to retire and earn enough returns from their savings to enjoy the same quality of life. This simple math shows the power of compounding.
This is a very powerful tool that almost anyone can use and be motivated by. So, go ahead. Set a savings budget and be on the path towards financial freedom.
There are many examples of people who have achieved financial freedom through this technique. The one we are inspired by is Mr. Money Moustache.
Get a Credit Card and use it wisely
Credit cards are double-edged swords. While some pileup debt, others save money. One can use their credit cards wisely to enjoy tens of thousands of rupees in rewards, cashback, and travel.
Today, interest rate APR’s on most cards can range between 20%-40% per year. If one is not diligent in paying their monthly balance in full, their credit card debt and interests will definitely pile up.
We recommend people to choose credit cards based on benefits and pay their debt in full every month. This will allow folks to save money on interest every billing cycle while also adding up rewards and benefits at the same time.
Read More: How to Apply for a Credit Card
Inflation in India today stands at almost 4%. So, when people put their money in most savings accounts or fixed deposits, they are earning no more than 3% annual returns on their investment. When one works so hard to earn their money, they should also be wise in investing in the right products to make sure their money grows with market needs.
We recommend that people diversify their investment portfolio beyond fixed deposits and savings accounts. People may look at mutual funds, Equities, etc to make sure that there is a higher return on at least a part of their investment portfolio.
Get your Health Insurance
As medical expenses rise up and lifestyle diseases envelope modern societies, the need for a health insurance is more prudent now. Many people think that the premium paid on a health insurance might not be worth it since there is no telling whether they may use the benefits of the health policy.
What people forget is that the cost of unexpected health emergencies can add up very quickly. The peace of mind that health insurance brings is definitely worth it. Moreover, most people will definitely save money in the long term by utilizing their policy at some point.
Get a Term Policy
Again, similar to the previous tip, a term policy could provide a lot of safety and protection to one’s family in case of the worst. Although this is not a saving, by investing in a term policy early on in life, one can save a lot of money on the premium.