There are many ways to learn how to save money. Saving for your dreams is easier when you are in control of your finances and make sound financial decisions. While we usually talk about how to save smartly, today we’re looking at a few common financial mistakes that could really get your savings off track.
Don’t Max Out your Credit Card
Armed with a high-value credit card, everything may seem within easy reach, but did you know that credit card interest rates are some of the highest in the market? To top it off, credit card companies charge compound interest, and in a given year, this can amount to a gigantic debt.
Carrying credit card debt can significantly affect your savings potential, especially in a market where deposit rates are low. In the long run, when you keep charging your card, what with interest rates and transaction charges, everything you buy costs more. So why not save for the future instead?
When dealing with your debts, start with the cards that charge the maximum amount of interest. As soon as you’ve paid these off, think about an automatic savings plan to save every month, even if it’s only a small amount each time. You’ll be surprised at how much your small savings will amount to over a period of time. You can use an online Power of compounding calculator to find out how much your investments can grow based over time.
Stop Draining your Emergency Funds
Borrowing from your emergency stash or Provident Fund should be the last resort. Once you’ve withdrawn this money any chance of earning interest on it or potential growth, is lost forever.
Bear in mind that when you withdraw from funds such as these, the money you borrow becomes taxable, so not only do you have less savings, you also have to pay more taxes!
Instead, think of a savings plan that doesn’t involve your emergency stash or retirement funds. Save small amounts every day for your ‘spending fund’; once you have saved enough, no dream is too big.
Don’t Invest in Long Term Policies or Insurance
While investment choices may be influenced by personal experiences or even advice from those close to you, before you take the plunge, stop and consider: does the policy you are about to invest in take your spending habits, short term goals and requirements into account? Most importantly, how much will you have to sacrifice to make this “investment plan” actually work for you?
Despite the fact that equities give you higher returns, many of us continue to invest in low risk, fixed investment schemes with little or no wiggle room. Bank deposits and LIC policies may be the norm, but with low-interest rates, will they really increase your savings and prepare you enough for high inflation rates?
Your money needs to grow at a higher rate than inflation, so it’s imperative that you save money for short term goals and invest smartly, both in your dreams and in equity funds or SIPs that yield greater returns. The best way to see your money grow exponentially is to have a smart, regularized and automatic savings plan for short periods of time. Each time your short term deposit matures, you receive a lump sum which you can then use to purchase or invest according to your preference.
Plan for Non-Monthly Expenses
Most of us draw up at least a rough list of monthly expenses and budget. In doing so, we often forget things that we don’t spend on every month. Wanderlust strikes us ever so often and the latest new gadget can be oh-so-tempting, but how will you pay for these when you haven’t planned for it?
Globally, holidays are one of the largest sources of credit card debt. You can avoid this by simple budgeting.
Think of your holiday as an annual investment, set yourself an amount you wish to save, and divide this up into amounts that you can save each month. Each month, this amount will be set aside automatically so it’s available when you need it. It may not lead to great earnings from interest, but it is certainly better than being in debt!
Save for your holiday automatically, not only every month but also every day with Wizely.
Save Money Instead of Borrowing
This one is a no brainer. When you borrow you automatically pay interest and often the actual amount you have to pay after interest is much higher than the cost of what you want to buy. Rather than paying extra on top of the borrowed amount, why not earn extra for every penny you save?
When you save rather than borrow, you don’t have to worry yourself about when and how you are going to pay it back. To top it off, when you buy something with your savings, you become the sole owner straightaway.
Saving for your dreams can be easy, you just need the right tools to make it happen. Sign up with Wizely to save for your dreams automatically everyday, without feeling the pinch in your pocket!
