Friday, June 09, 2006

Money saving Ideas

Savings ideas from, slightly abridged
1 Repay credit card debts first. A credit card is an expensive short-term loan that destroys wealth. Card issuers charge an interest of 24-36 per cent a year on card rollovers. If you are earning 7 per cent on your bank deposit, but paying 24 per cent on your card rollovers, you are better off breaking your deposit to clear your dues. Most of us have the capacity to pay, but don’t out of ignorance or inertia.
2 Make a savings target, rather than a budget. I admit budgets are boring. Working out what you are spending on milk, eggs and meat each month fatigues the mind. After the initial enthusiastic burst, the budgeting exercise dies a quick death. Much easier to make is a monthly savings target and move the money out of spending reach. You do need a broad fix on what it takes to run the house each month and keep some extra for the unexpected. Then, fix the saving amount. Bump it up each time you get an increment. If you are saving 25-30 per cent of your post-tax income, you are doing really fine.
3 Invest every month. Don’t let this saving money lie in a low-earning bank deposit. Empty the account to invest the money each month. Use a systematic investment plan (SIP) in a mutual fund or a recurring deposit in a bank to bind yourself to a regimen. You’ll notice that once investing becomes a routine, it is no longer an unpleasant chore. You’ll find yourself tracking your increasing net worth with joy.
4 Spread tax saving through the year. It’s a bad idea to invest the full Rs 1 lakh at one shot, especially towards the end. In fixed-income instruments like PPF and NSC, the earlier you invest during the year, the better. Your money earns more interest than if you left it in a savings account till the year-end and it comes back to you at an earlier date. In equity, a staggered approach takes the guesswork out of investing and reduces the element of luck.
5 Buy life cover only if you need it. Friend is single, has no plans to get married, has financially independent parents. Therefore, friend doesn’t need life cover. Most people, like him, tend to use life insurance like a blotting paper to soak up tax-saving investments. Much better to buy life insurance for its basic purpose — protecting the financial future of your dependants. Use a cheap term policy to do that.
6 Tell your spouse where your important papers are kept. Or better still, also make a will. There is Rs 942 crore of unclaimed money with the EPFO, about Rs 800 crore of unclaimed dividends with UTI, Rs 240 crore of unclaimed company dividends that sits with the Investor Education and Protection Fund. Much of this money belongs to people who have either died without leaving any paper or directions to their families.

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