When it comes to finances, people can be categorized in mainly two categories, one who lives in the present and spend their hearts out and the other who live their present being a miser thinking about a wealthier future. If you are one of the people who are of the view that “You Only Live Once” and not think about your future, you may fear when thinking about emergencies. Alternatively, if you are someone who always thinks about the future, then you might not be enjoying your present.
Then how do you strike a balance between your spends and savings? Here are four simple ways that can help you do the same:
Waiting and saving for your dream car can be agonizing. Instead, you plan to take a car loan and buy the car. With so many money options available these days, it is not difficult to arrange funds to fulfill your dreams. However, you must ask yourself whether you want to spend now and pay it off in equal installments or wish to save it and then spend it later? In order to be financially strong, the best option might sound to save by cutting back your expenses. However, this would limit yourself from enjoying your today.
This is why you should do both! The key to successful saving is to pick a specific timeframe and to plan your financial goals around the same. For instance, if you plan without a timeframe, you will find it much easier to spend instead. One of the easy ways to balance your spends and savings is by planning your finances in five-year blocks. What all would you want to do in the next five years? This can help you save money with a goal.
The amount you have for spends depends on the net surplus. The net surplus is the amount you get after deducting your living expenses from your monthly income. In order to separate your expenses, you can divide your living expenses in cash payment and online payment.
The expenses that can be paid online could be your rent, utility bills, EMI payments, travel and others whereas the expenses you make by cash could be paying off your maid, cook or groceries. The total living expenses would be a sum of both. This will help you calculate your net surplus and from this point where you should think about your savings.
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Once you separate your expenses and calculate your net surplus, it is time to allocate your assets. Instead of thinking that you need to save a lot of money, start focussing on saving the right amount by knowing what you are saving for. This could be a trip in the next 2 years, a house in the next 10 years or even your retirement planning. However, the amount you save depends on your savings option. For example, if you plan to buy a house in the next ten years and need a down payment of ₹20 lakhs, you will have to start saving ₹2 lakhs every year.
This is where the power of compound interest comes into play. Instead of saving ₹2 lakhs every year in a savings account, if you invest the same in the equity market, the possibility of earning profits in double digits are higher. Even if the returns are 12%, you will need to invest ₹1.14 lakh per year for your goal.
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It is not difficult to save but putting a stop on your spends. However, if you can control your impulsive purchases and save yourself from wasteful expenditure and think about your bright future, you might end up having a secure future. In other words, start embracing delayed gratification.
Delayed gratification is nothing but putting a stop on things or activities that give you pleasure now in order to gain a future that is more pleasurable and fun.
So, there you go! With the simple steps given above, you can strike a balance between your spends and savings with ease.
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