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Tuesday, May 15, 2012

How to Save Money?

Family Finance Management

Money Saved Is Money Gained

This will prove to be one most important space for you where you will like to come back frequently to find out large numbers of ideas and tips to save your money. And after all, money saved is money gained. “How to earn more money” is a great idea but if you can’t save out of it where is the big fun? It does not require brains to spend or squander the money; to save and use it prudently surely does.

Value Adding Management (VAM)

Our approaches to saving money are scientific.

The first approach is primarily based on the concepts of “Value Adding Management (VAM)”. In brief, it means, spend your money only on “value adding activities” and therefore, on “value adding things”. Try to minimize and eliminate spending money on “non value adding activities” and therefore, on “non-value adding things”. There will be occasions when you may not be able to clearly classify the activities as either “value adding” or “non value adding”. You may like to classify them as “non value adding but essential”.

Example (in the lighter vein absolutely): In giving gift to your spouse or your boy friend or girl friend, as per this principle, you may have to resort to spending your money in buying a gift that is really good and the one that will arouse the emotions and lift the mood of your spouse or boy friend or girl friend, but it should be non-expensive. It is called “non-value adding but essential expenditure”. Put a good control on such expenses also and minimize these activities. If some people do think this type of expenditure as “value adding”, then, go ahead and empty your pockets!!

In essence, what it means is: manage the unavoidable and avoid the avoidable.

Eliminate Spending Your Money on Non Essential Non Value Adding Activities

Don’t throw your money in the activities which are non-essential, non value adding and over which you don’t have much control. You will save tons of money. You will also eliminate one big chunk of non-essential activities of your life which are absolutely non value adding. This will give you extra time to spend on more useful actions. That may also earn you more money.

Don’t Do Things Given Below and Save Lots of Money (Eliminate Them)
  • Gambling 
  • Betting
  • Horse Racing
  • Visiting casinos for gambling and indulge in gambling there
  • Smoking
  • Taking drugs
  • Drinking (Alcohol)
  • Things you don’t need (Don’t buy them)
  • Impulsive, emotional and/or impromptu buying that is non-planned
  • Keeping up with the Joneses (Let me also buy since the others have it, irrespective of the fact that I don’t need it)
When you buy non value adding things, you do have to organize floor space, storage space and maintenance activities to store them and preserve them even though they are non value adding . That is very expensive. So, in the first place you threw you money to buy non value adding stuff and now you are throwing your money in buying spaces and maintenance activities.

Use Income and Expenses Folio to Budget and Improve Savings

Write down your monthly income. Also write down your monthly expenses against each classification of expenses. Carefully go through all the expenses at least on a fortnightly basis and decide where, how much and how can you reduce the expenses in the forthcoming period(s). You will definitely get the right answers to save. Write down the new reduced limit of expenses against that expense classifications. You may get pleasant surprises.

An example of format is given below:

Income (Monthly)
  • Combined income of family after taxes
Expenses (Monthly)

Fixed expenses
  • House rent/home loan
  • Children’s fees
  • Automobile (car) loan
  • Any other loan
  • Insurance Premiums
Household expenses
  • Grocery
  • Transportation (gas, repairs etc)
  • House help (servant, gardener, cook etc)
  • Phones- landlines
  • Phones- mobile
  • Electricity
  • Water
  • Gas
  • TV cable
  • Internet
  • Medical 
Lifestyle expenses
  • Clothing
  • Entertainment
  • Eating out
  • Gymnasium/club membership
  • Personal care
  • Books
  • Newspapers/magazines
  • Travel
  • Holiday

Other miscellaneous expenses
  • Household gadgets
  • White goods
  • Festivals
  • Gifts
  • Socializing
  • Others
Against each one of these classifications, write the actual expenses and then, the reduced projected expenses. You will get an idea of your savings per month by this method.

ABC Classification

Other approach is to apply ABC classification to your expenses. You can apply this approach while using the income and expenses folio to budget and improve savings given in earlier paragraph. 

Please remember that as per ABC rule, 90% of your expenses in terms of your currency will be just of 10% of all your buys. So, control your spending on these just about 10% of all of the items you buy. This way you will not waste your energy in controlling a large number of items which ultimately result only in very small savings. With ABC approach, with control on just about 10% of items of all the expenditure, you can save a good percentage of your 90% of total expenses which can turn out to be very significant amount.

Carry out “ABC” classification of your monthly, value adding and essential expenses on your consumption items and control “A” class items of expenses to start with:

Stage 1
  • Before making list of value adding, essential items of your regular consumptions, make a list of all the non value adding, non-essential items that you actually bought during the month under review.
  • Against each such item, write down the quantity bought, it’s unit price and by multiplying the quantity bought by unit price, you will get your total actual expenses done by you on the non value adding and non-essential items that you should not have purchased in the first place.
  • Now, make sure that you will not buy these items in future at all. That’s your big saving on a recurring basis.

Stage 2
  • Now,make a list of all the value adding and essential items of regular consumptions.
  • Against each item, write down as to how many units of each item you consume.
  • Write against each item the unit price at which you buy the item.
  • Find out total expenses in your currency for each item. To do this, multiply the quantity of consumption by the unit price.
  • Arrange the items in the descending order of value (expenses) of each item.
  • Add all these expenses, you will get your total expenditure of the month.
  • Take the first item on the list and work out what percentage of total expenses it forms.
  • Do the same for the second item on the list and for third item and for all the items on the list.
  • You will find that only first 10 or 15 items on the list may account for about 70% to 80% (or more) of the entire expenses on all the items in a month.
  • Concentrate on these 10 to 15 items for controlling the expenditure on them, to start with.
  • Find out ways and means of controlling expenses on these 10 to 15 items and implement them. You will surely save good amount of your money soon.

Make Do With Less

In all the above mentioned approaches, you can apply a simple rule of thumb.

As a starter, decide to do with 10% less of everything than you are at present used to. Do this particularly with those items that seem to be non value adding items. For example, decide that you will save 10% of edible oil consumption. Consuming excessive oil is not really good from health point of view (that’s why it is non value adding). Having decided, now start thinking about ways and means of reducing the oil consumption by 10% and implement them. Then increase it to 20% and then to 30% and so on.

Do the same with other items of this nature.

You will amazed to see the savings you start making. Start now.

Stop or Minimize Living on Loans

To lead a life under the perennially hanging sword of debts is never a healthy life style. Nor it makes sense economically or financially. You lift the loans from the various lenders at exorbitant interest rates and throughout your life, you pay through your nose, the hefty interest part of your loan alone for a very long period of loan repayment before you come down to repay the principal part of it. You are meekly handing over your hard earned money (on which you have paid pretty good amount of income tax) to money lenders who are amassing your money without doing much. Do any calculation and you will find that you are a loser. This whole thing is a big drain on your earnings. If you can save it by buying only that much which you can afford within your earnings, you can stop this drain and lead a life with less tensions, pressures, stresses and strains.

If you must buy something like education, house or car and you can not afford them within your income, do take sensible amount of loan(s) and settle for an appropriately priced education, house or car.

If at all necessary, take loans only for value adding essential items or activities like education, house or car (car, only if the public transport is absent or inefficient). Do not take loans for anything else.

The most prudent and simplest principle while deciding the amount of loans you wish to take is: Never owe more than what you own overall.

Cut Out on Eating Outside

It is a general knowledge (though we also know that general knowledge is always not so general) that almost all the restaurants jack up the prices of all the food they serve with very hefty profit margins. That’s where your hard earned money drains out so very easily without any efforts. 

Cumulatively the damage on your pocket can mount to a very chunky size. Keep a close track of the money spent on eating in the restaurants, at least for a couple of months and the figures may shock you.

In addition, the food served in these eating joints may not be all that hygienic and may not be nutritious. Also, you spend your time in commuting (time in itself is money) and therefore, you spend your money unnecessarily also on gas and vehicle maintenance as well.

The major tip to save money here, therefore, is: cut down an eating outside. Instead, cook at home from the basic raw ingredients or from semi cooked stuff. Also use raw salads, fruits, milk, yogurt, cereals, brown bread with cheese, butter, peanut butter, jam etc where you do not have to cook at all. Cooking and assembling your meals can be a good diversion from your other activities, good entertainment and past time. If you feel lonely doing it every day, make variations by inviting some one you like to do joint cooking with you and then seek reciprocation for this procedure.

Try it, you will save lots of money.

In Praise of Use of Pressure Cooker in Your Kitchen

The invention of pressure cooker as a cooking gadget in your kitchen is pretty old now. However, a large numbers of households all over the world do not put it to its best use and thus deprive themselves of a good chunk of savings. Besides, there are other benefits too.

Use of pressure cooker saves times and therefore, saves the expenditure on cooking fuel or electric power. It takes on an average around 53% less time to cook in a pressure cooker when compared to open pot cooking. This takes into account the time required to bring the cooker to full pressure as well as the time during which the food is cooked under full pressure. The longer an item takes to cook, the greater is the time saved through pressure cooking.

Here are some examples of time saved on cooking certain basic food items. The time taken to cook around 1.8 kilograms of potatoes in an open pot is around 47 minutes whereas the cooking time for it in a pressure cooker is around 16 minutes giving you 31 minutes saving in time or in terms of percentage of time saved, it is 66%. For cooking 900 grams of rice, these figures are approximately 33 minutes, 14 minutes, 19 minutes and 58%. For cooking 2.5 kilograms of mutton they will be approximately: 100 minutes, 26 minutes, 74 minutes and 74%.

Because you cook faster in a pressure cooker, you save fuel or electric power and therefore money. A family can save at least half of cooking gas or electricity, it would otherwise need, by using a pressure cooker to cook daily meals. The fuel or electricity prices are constantly rising and the supply may also be erratic at many places, this saving is an advantage one can ill afford to ignore.

The beauty of a pressure cooker is that you can cook a number of dishes simultaneously at a time in a pressure cooker thus further reducing the time taken and increase in the savings per dish cooked. 

For non-vegetarians it provides additional savings because even the tough cuts of meat also get cooked in minutes in pressure cooking. So, they can by even tough cuts of meat instead of only choice cuts which are normally more expensive. From the point of view of nutrition or taste, the tough cuts of meat are no way inferior to the choice cuts.

In addition to savings in time and in your expenses on cooking fuel and electricity, pressure cooking is healthier since it retains nutritive elements of food, it improves taste and it is fully hygienic. One more advantage is that you can use pressure cooker as a sterilizer. Pressure cooker operates at a steam temperature of 121 degrees Celsius which is also recommended for sterilization of bandages, babies’ feeding bottles, injection syringes and host of other items that require 100% germ free condition.

Look at All Your Bills Carefully

You have to pay lots of bills these days. You get bills frequently for the items like:
  • Mobile telephone (cell phone)
  • Land line telephones
  • Electricity/power
  • Water
  • Cooking gas
  • Equal monthly installments (EMI) for loans taken for vehicle, house etc
  • Property tax
Go through these bills for their amounts carefully. If you see an upward trend in the billed amounts, that definitely raises the alarm. Even if they are not going up, you have to think in terms of how you are going to cut down the billed amounts in the next bills.

You will have do a bit of cause and effect study. By this, you will be able to find out the causes of unnecessary consumption. Go in to their details and work out the solutions to consume less of those things.

Start with an aim of reducing bill amount by 10% and achieve it in the decided time line. Then, become a bit more ambitious and try to achieve another 10% cut and so on.
You will see amazing results in your savings. Best luck.

Cut Down on Use of Land Line and Mobile Telephones

If you are not careful in using your land line phone(s) or mobile(s) prudently, the telephones bills can be pretty steep. Keep a watch on them. Observe carefully your expenditure in telephoning.

Instead, it will be better idea to chat and speak with your friends, family members, relatives, acquaintances and others by using the computer (in any case you are connected to Internet most of times and you are already paying for it whether you are using it or not). So, chat/speak via Internet using your computer.

On phones, in addition to the fixed charges, you are paying dearly for each call you make and receive (and the roaming charges are too high). By using Internet through computers your communication/chat/talk are all free, all you are doing is to pay only the fixed charges for Internet connection. You can speak/chat for hours with zero incremental expenditure.

Find out your savings using this method; you will save lots.

Manage Your Health and Medical Expenses

Lots of vicious systems have come to stay in human society because of the economic muscles of the interested parties and their ulterior and greedy intentions and actions. One of them is the exploitative execution of the otherwise noble concept of insuring. So the whole lot of insurance companies, who have become unimaginably stinking rich are controlling the entire medical and health care market. The result is: prices of using the medical services whether they are hospitals, doctors or medicines etc have been draconically, artificially jacked up.

Till such time these system remain intact and flourish further, you have no alternative but to cover yourself and your family by a good and economical medical insurance scheme. If you do not do so, you will have to shell out fortunes to buy these services and your coffers will drain out in no time. 

Today’s medical and health system is that bad and that expensive. You just cannot afford it without taking an insurance cover.

So do it. Choose the better of the lot that are available in the market.

(I wish we could eliminate the insurance companies altogether who act as the mafia type middle men and instead let the real professionals like doctors, pharmaceutical companies and medical equipment manufacturers etc run the show as a free competitive economy. The prices of buying the health and medical services will surely come down).

Another Evil: The Credit Cards

The main evil is “living on debts, living on loans”. The interested parties have glamorized it a lot by brainwashing most of the people by advocating that the real way of living life is to start enjoying all the material pleasures from the very first day of your life and for that these interested parties are willing to provide you the loans at vulgarly and obscenely high interest rates.

Credit card system comes very handy, on a day to day or even minute to minute basis, to fulfil your such desires without your possessing any ready cash of your own with you. And if you default to pay back the entire money due on you on the specified date, the credit card companies allow you to carry forward your loans. It is so convenient for you if you are spending more that what you earn and credit card companies are happier still, since they can extract lot more money from you after a few months or few years on that carried forward loan. Ironically, they do not have to do any work to earn that extra money. Just keep adding the interest. And so, you get a shock of your life when the credit card company sends a statement after few months demanding a sum of money that is far higher than your own estimate of what was due on you. The interest rates are unimaginably and more so, unreasonably and illogically high. (I wish that the government in every country could exercise some control on it and put a cap on the highest interest rate that the credit card companies can charge).

Under the existing circumstances, better thing is to use cash to buy things and if you at all use the credit card, keep a track of how much have you bought on credit card in order to keep a control on expenses using the credit card. This way, you will be able to pay back the entire money due on you on month to month basis and you will never waste your money in paying the unnecessary and heavy interest.

For more of the author’s work

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