Manage your money better to save more
Avoid extra costs, penalties and services you don’t need; make use of tax benefits; and invest even the small credits to improve savings
The oft touted reason for your savings being lower than what they should be is that your income and expenses just don’t allow for any savings. But saving is not only about cutting back on living expenses so that you can save and invest. If you look carefully there are many choices that you can make in the way you manage your financial affairs that can be improved to help save money. Know what you want and then evaluate options, costs and vendors so that you get what you need in the most cost-efficient way.
Investment fees eat into the returns you earn and the impact is compounded for long-term investments. Fees for financial services are an expense that you should pay only where it is warranted. Apart from the costs, the reputation for probity and efficiency are equally important characteristics you look for in an institution dealing with your money. Take the effort to short-list service providers who pass this test and then compare the charges. For example, credit cards, bank accounts, demat accounts, and trading accounts may all charge an annual maintenance fee apart from the transactions-linked charges. These include cash withdrawals from ATMs and issue of cheque leaves, the interest rates on unpaid balances on credit cards, brokerage on trades by brokers and so on. Consider the value of an additional service, like access to the derivative market segment offered by a broker or additional life insurance cover offered on a credit card, before you agree to pay extra for it.
Altering the way you use a service is another way to save on fees. For instance, if banks charge additional fees beyond a certain number of ATM transactions, then plan transactions accordingly.
Be disciplined about payments
Missed credit card payments, loan repayments, insurance premiums and taxes all mean penalties and fess for the delay and to regularise the account. There are less direct implications too. Erratic repayment of loans will affect your credit score and you will be paying higher interest cost on fresh loans; unpaid credit card balances are charged a very high interest and the protection from insurance cover is not available when the policy is not in force. Sign up for automatic payment options offered by banks for all mandatory payments. Keep track of bank balances so that you are not penalised for not maintaining the minimum balance required. Close unused bank accounts, trading accounts and demat accounts so that you don’t keep incurring penalties and fees on them. Explore the possibility of consolidating your holdings under one demat account so that the costs of maintenance comes down. Update your investment records with your correct address and currently active bank account so that you get your investment dues on time.
Use tax benefits
Tax benefits are not restricted to the deductions available under section 80C of the income tax Act. Interest paid on home loans and educational loans, school fees and certain medical expenses, among others, are also eligible for tax deduction. Rental income is also eligible for adjustments that brings down the taxable income. Premiums paid on health policies for parents are eligible for additional deductions. Make sure that any losses on your investments are set off against the gains that you make on which you are taxed.
Money saved on tax is yours to invest and catch up on your goals.
Collect, invest small receipts
Ignoring small cheques and credits will harm your finances as much as small fines and penalties. These are returns that you have earned from your investments, and which you can re-invest. Over the long term this adds significantly to your corpus. Use the facility offered by most investments to directly credit investment returns to your bank account. It eliminates the complications of receiving and depositing cheques.
Have a designated investment account to receive returns and make investments.
Other amounts that come your way include tax refunds, cash-backs. Periodically review your investment accounts so that you can ensure that you receive all that is due to you and are not charged any fees or penalties beyond what you have agreed to.
Manage insurance costs
Insurance premium is an expense you have to bear for the protection it gives to your income. It is important to be clear about the type and quantum of protection you need. Buy insurance for the cover and not for the tax benefits. Opting to pay a percentage of the claims out of your own pocket can lower the premium payable on a motor insurance policy. Buying policies online and choosing the annual payment option over more frequent premium payments are other ways to reduce the premium cost.
It is never too late to correct a wrong decision, especially where it concerns money. If you really want to benefit from all the effort you put in to select the right product then ensure that the money that you save finds its way back into your investments.