3 Proven Techniques to Save Money & Build Wealth Gradually

We are living in the age of consumerism and luxury. Expensive stuff is available in instalments! We party, eat out and travel more than before. It is easy to get lost in the web of expenses and lose track of savings.

It would help if you often analysed the financial factors such as your saving fund and need for an additional income. You can increase your money flow by investing in real estate, fixed deposits, stocks, bonds, gold, and chits/ chit fund. When it comes to spending a more significant chunk of money for an emergency or a big purchase, you must have spare funds with you.

Following are 3 proven techniques on how to plan your expense so that you can always have an emergency fund in your bank:-

1. The Simple But Effective 20/10 Rule of Debt ManagementThe 20/10 Thumb Rule asserts that your annual consumer debt payment should be less than 20% of your yearly income. And your monthly EMI should not be more than 10% of your monthly income. This thumb rule will prevent you from overspending on consumer goods and debts. It sounds like simple maths, but there are few things you should keep in mind while applying this formula.The income should be calculated after-tax net payment or take-home salary. The 20-10 rule is only for consumer durables loans to make sure you don’t overspend. Mortgage loan like home loan or office loan doesn’t come under this calculation. These loans are considered as investments.It can be difficult for you to follow this rule if you are repaying your student loan. But the 20-10 rule works perfectly for everyone else to control the debt.
2. 70/20/10 Rule for Budgeting for a Large ExpenseThis is also a simple rule to understand. First of all, you need to calculate your net monthly income, including your fixed income, incentives, tips, etc. Now you need to make a budget where your regular expenses comprise only 70% of your monthly payment. By expenses, we mean shopping, groceries, bills, eating out, and other utilities.The 20% of your income should be dedicated to paying debts or savings, whichever is on priority. But cover your debts before you start to save. The rest of the 10% of your income can go into investment, pension schemes, or higher education. The point of this rule is to live off on 70% of your income only.That way, you will always have a contingency fund ready for any substantial unforeseen expenses. Reason being that you are not spending everything you earn.
3. Combination of 3 Golden Rules of How to Plan Your ExpenseApart from all these contemporary rules of money management, there are 3 golden rules which are ever relevant. The first of these 3 rules is never to spend more than your income. If you don’t spend everything you earn, you will always have savings. Sudden pay cuts will not threaten you as your living standards will be within reach with less income.Along with spending less, you need to be regular with your savings. That is rule no.2. You should always save before you pay. Make sure your money is transferred to your recurring, FD, or savings accounts before the bill payments.After savings, it comes to golden rule no. 3 that is plan investments to grow your money. Often people get confused between savings and investment. Saving is for budgeting for a large expense or emergencies. In contrast, investments are to grow your money. Some high-return investments include chit fund, stocks, and bonds.

Conclusion

The basic rule of debt management is to save more and spend within limits. These formulas are to help you get there. Sometimes you might feel that it is not possible for you to spend only a limited amount of your income. But when you look closely at your expenses, you will find expenditures that are not mandatory.