Category: Thrift

A couple of people responded to yesterday’s post saying that writing about saving money once in a while is not a bad idea at all, so here is a post with two ideas that have helped me save some money this year.

Sticking to my new year resolution

At the beginning of the year I made a resolution that I will not buy anything on impulse, and so far I’ve stuck to it without exception.

This turned out to be easier than I thought it would, and all you need is a mental check that tells you to wait a while before you make the purchase. I used to pick up quite a few things on impulse and used to subscribe to a lot of magazines, newsletters and newspapers whenever they offered a discount but I’ve let most of them expire now, and have only continued with two or three subscriptions.

I think after the third or fourth month, it just became a habit where every time I looked at something shiny and felt like buying it, I immediately checked myself and waited a few more weeks to see if I still remembered the thing or not.

The latest example of this is Bose headphones. While driving with a friend one day, he put on a song at a high volume and it sounded much better than what I’m used to on my headphones. Then I came home and stumbled upon an ad for Bose headphones and the “must have it!” impulse hit me there and then. But as is habit, I’m still waiting to see if I’ll still want them after a month or so.

If you can control your impulse purchases you can cut through a lot of clutter and save some money as well. If you haven’t ever given thought to this then I would say that this is something definitely worth trying.

Buying Fridge Magnets

My wife and I travel a fair bit and somehow you’re most susceptible to buying crap when you are on a holiday. You feel that since you’re on a holiday it is okay to splurge a little and you end up with all sorts of junk that you will never need or didn’t even want that much in the first place. I have dream catchers that aren’t catching any dreams, cigars that I’m never going to smoke, and hats that I most certainly will never wear which remind me of this every day.

Then sometime last year we invited a few friends over for dinner and one of them commented on the fridge magnets that we had collected over the years and from then on we decided to buy only magnets for souvenirs. They are cheap, you can buy a few of them, are usually shiny and satisfy the need to bring something back on the holidays.

If you have felt that you fall prey to shopping sprees on holidays try buying something that you get everywhere and is inexpensive.

I have to say that I firmly believe that this will only work when you buy something that can be shown off. The magnets themselves may be cheap, but they tell a story of how many places we have visited and as vain as that may sound, I think that’s what makes it work.

These are two things that have definitely helped me save money and cutting clutter without compromising on anything at all and I think they are easy enough to try even if you feel you don’t spend that much on impulse purchases or holiday shopping.

Do you have some ideas you want to share?

One of the things I haven’t touched upon in a while here is thrift and credit card debt.

As the year comes to a close I thought I will do a post on credit card debt and interest on credit cards because I think I’m fairly close to a year in which I pay zero credit card interest.

Last year I paid a nominal amount because I forgot one payment, and the year before last I paid a small amount for the same reason as well.

Paying no interest on credit cards is a really important thing for me and I even listed down getting out of credit card debt as one of the important things to do before you start investing.

To most people, this is because credit card debt brings very high interest with it and that is money down the drain, and while that is a big reason, it’s not the biggest reason by a stretch.

The big reason for me is all the wasteful spending that you are likely doing if you run up credit card bills. When I look at my own bills they are mainly travel, groceries and eating out, and there are several ways that I can and I have reduced them in the past.

This point becomes especially important for people who are fresh out of college and have started earning recently without much financial responsibility to worry about.

Once you get into the habit of spending a “little bit” more than you can pay off with your salary – that little bit only grows every month till it reaches a point where your salary gets over on the first of every month.

This is a ridiculous situation to be in – not only financially, but also in terms of living a meaningful life. If your number one worry is sustaining your lifestyle then that doesn’t allow you to think about growing your net worth or even branching out into things that you truly enjoy doing.  It just takes a lot of your mind space.

Getting out of this is simple – really simple – spend less than you earn, and if you think it is much more complicated than that then you simply aren’t doing it right.

This brief and excellent post by The Weakonomist both explains why this is simple, and also why it doesn’t need to be discussed a lot – just something to be internalized and live by.

In the last poll I asked you much money you save, and I am actually quite surprised with the results. A large majority of you save more than 20% of your salary, which is actually pretty good.

First Gen American noted that the result for this poll is probably going to be skewed because it is posted on a personal finance blog, and it’s only natural that people reading such blogs are relatively smarter about their money, when compared with the rest of the population.

That’s obviously true, and the only thing that makes it a little more representative of the general internet population is that a lot of search engine visitors also take the poll, and they are not necessarily subscribers. But in all honesty – yes – the results are a little skewed because someone reading a blog about money, and investments is obviously a lot more concerned about their finances than other folks.

Anyway – if you’re saving less than 15% of your annual salary then know that a lot of people are doing a lot better than you in this department, and if you’ve never thought about your spending habits, then this is a good time to sit back, and take stock of how you can save, invest and build wealth. A penny saved is a penny earned after all.

Let’s look at the results in a little more detail now.

About 11% of the respondents said that they don’t save anything, and the only silver lining there is that this percentage is small, and I guess the only reasonable thing for them would be to start saving, however little possible, and develop the habit.

When I think of this section, my thoughts invariably go to a few of my younger cousins, who have just started earning, and saving money or investing is the last thing on their mind. It’s probably good for them to have fun for a year or two, but eventually they will have to face the realities of life, and start taking more responsibility for their money. I hope they think about it sooner rather than later.

If you are reading – Just get started!

Next, let’s take a look at some of the themes that emerged out of the comments section.

Structure your savings and investments

Hema said that she observed that a lot of other people think about their savings and investments in a very structured manner, and they have started to do that as well.

And yes, a lot of people do give a lot of thought to how much they save, what their investments should be like, and I see this almost everyday in the kind of emails I get. People are concerned about the mutual funds they buy, about the ETFs they hold, and insurance they would like to buy.

I’ve quite honestly not seen anyone think about money in a very structured manner in my close family, so for a large part of my life I felt that the whole world was like that, but thankfully I was exposed to people who thought about money a little more seriously, and that has been a really good experience for me.

Structure and thought in savings is essential to get you started, and then to help you make better decisions, so the sooner you take a more holistic approach to your money, the better it is.

Enjoy what you already own

Before I get to this excellent point that Indian Thoughts brought up, let me tell you that I’ve been following her blog for about a year now, and if you want to see structure you can see it there.

She has these goals that she has set at the beginning of the year, and at the end of every month she does a post describing how well she did on the goals. You can check out the post for November 2010 to see for yourself what I mean.

I have her on my reader just for the inspiration that I get from her discipline, and I really admire her for that.

To her point – I feel that personally I’ve spent money many times just to kill time or overcome boredom, and that’s the worst way to use your money. For her, it has been enjoying what she already owns, and I’m trying to build this solar cell charger that keeps me occupied in my free time. I have made very little progress in developing it, but the point is that it keeps my mind from wandering to other wasteful activities, and even if I ultimately fail at building this solar cell phone charger I would have learned a few things I didn’t know before, and hopefully not wasted time on buying junk to keep myself occupied.

If you’re the kind of person who sometimes shops just to kill time, then you might want to think about this point a little more.

Pay yourself first

Patrick spoke about paying yourself first, and this is a common theme that you come across many personal finance blogs. The idea is that you set up your bank account in such a way that it automatically transfers a certain sum every month from one account to another, and forces you to save.

If you’ve tried to save, but not found much luck with it then you can try this automatic way and see if it works for you. I have neither positive nor negative feelings about this, but I know that it surely works for some people, so you should definitely try it out if you’re having trouble getting into the saving habit.

Conclusion

I don’t write about the thrift or the savings aspect of personal finance as much as some other bloggers do mainly because it is somewhat boring when compared to looking at yields, or discussing IPOs and ETFs etc. but I do realize that being thrifty, and having a good control on your spending is really important too, so for suggesting this topic and bringing my attention back to it – a big thank you to Raja, and of course a big thanks to all of our commenters for their thoughts too!

Yesterday I asked for poll ideas at my Facebook page (why haven’t you liked it yet?), and reader Raja Panda suggested the following question:

About what percentage of salary(net) people save at what income level.

I have simplified this a little bit by removing the income level because it’s easier to conduct the poll that way, and also because your standard of living increases as you start earning more, so while you may think that you will save more at a higher salary, in reality that is not the case.

So, here is the question for the new poll:

What percentage of your monthly annual income do you save?

• I don’t save anything currently
• Between 1 – 5%
• Between 6 – 10%
• Between 11 – 15%
• Between 16 – 20%
• Above 20%

The poll is on the left sidebar, so feed and email readers please click through the site and vote. Also leave a comment because as you know – I use them as feedback when I prepare the poll results post, and of course it gets everyone thinking too.

Leave a comment letting everyone know the changes in your savings habit from the peak of the recession to now, and whether you think about saving more at all, or any other thoughts you may have about saving.

Let me start off by telling you that I am not a very thrifty person by nature, but when I graduated I had a student loan to pay off, which forced me to take a certain amount and keep it aside every month. With time that loan was paid off, but the habit stayed with me. It was like having a chunk of money that I didn’t have before, and luckily I had the sense to continue keeping that money aside, and that helped develop a saving habit.

Then during the great recession, I really realized the importance of having an emergency fund, and being thrifty. If you can live below your means, and have no credit card balance or EMIs you can sleep a lot better at night.

But between the recession and having to pay off that loan, I think the loan had a lot more influence on me just because it lasted so long, and forced the habit on me.

Your turn now – leave a comment about your saving habit, and any tips that you may have to develop a thrifty mindset.

Update: Raja made some recommendations, and since not many people had voted, and the emails were not sent out, I made a few changes in the options.

I engaged in a bit of impulse buying recently, and bought a Sony Blu Ray Player, that I totally didn’t need. I don’t regret it because I have been eyeing one for a long time, but I was thinking about what leads to impulse buying. I did a little research and found several interesting articles that discussed reasons that lead to impulse buying.

Here’s what I found:

1. Navigating through categories lead to impulse buying: I found this paper on e-Commerce that had a very interesting study on impulse buying and what causes it. The paper studied habits of consumers shopping online, and found that people browsing through products by clicking categories were more likely to buy something on impulse than people searching for stuff online. The rationale is that people navigating through categories get exposed to a much greater breadth of products than people looking for products through search.

2. Power Distance Belief (PDB): I found this research paper that discusses the concept of Power Distance Belief (PDB) and its impact on impulse buying. I am not sure if I fully agree with it, or even understand it, — but it’s a really interesting and novel take on the subject. Power –distance belief — is the degree of power disparity that the people of a culture expect and accept. Higher the PDB, the more a person expects and accepts disparity in power. Eastern cultures like China and India have a high PDB and western cultures like America have a low PDB. A low PDB results in greater impulse buying, and a high PDB results in lower impulse buying. The reason for that people is eastern cultures who expect more power disparity, are also brought up to practice self restraint much more than people in western cultures who don’t expect so much power disparity.

It is easier to digest the fact that people who have more self restraint are much more likely to avoid impulse buying than people who don’t have that level of self restraint. To stretch that concept to cultures and expect power disparity and such, — well that is something I am not too sure of, and will leave it to you.

3. Prosperity: I really don’t need research to tell me that prosperity leads to impulse buying. During the peak of the recession – impulse buying was not even something I thought about, let alone engage in. Now, that the situation has markedly improved, — a lot of people are engaging in it, including myself.

4. Shiny stuff causes impulse buys: According to this piece, things that are sparkly, noisy, jiggly, furry, fuzzy, or have any other feature that makes them draw attention will sell well on impulse. This makes sense too, because the more attention something draws, the more likely it is that you will think about it and end up buying it.

5. Price: This factor is the most talked about when it comes to impulse buying. A lot of people say that they indulged in impulse buying just because something was on a discount.  I am sure deals and discounts contribute to impulse buying, and when we see something priced much lower than what we are used, — that triggers a desire to get that thing and save money.

A large part of all purchases are attributed to impulse buying, this is undoubtedly good for retailers, but it’s not as good for consumers. I say that because a lot of my own impulse buys don’t end up getting used at all, and I regret spending any money on them.

This  is a guest post by Financial Information Blogger

Recession! Recession! Recession! No other word has impacted us more in the present times than this, and why not?

You know as well as I do that we need food to fill our stomachs, and that comes with a price.

You might be apprehensive about keeping your kitchen fire alive during this financially lean period. Don’t worry; I’m here to give you some simple tips that are really working for me.

Continue reading “Simple Tips to Drive Away Your Financial Blues”

Disappearing Act by Coffee Monster

Almost everyone has asked this question at one point, or the other. It seems, that you make a lot of money and then, at the end of the month – you find that you don’t have anything left in your bank account. You can’t think of any ‘big ticket’ items you bought in the month, but at the end of the month – there is nothing left.

I struggle with this all the time and so far the most effective way to tackle this has been checking my online bank account at least once every day.

I have made a conscious effort to pay for most of my purchases through my debit card, so that, it reflects in my online bank account almost immediately.

At the end of the day, when I go through my account, I can see all the debits that took place during the day. Instead of looking at the amounts – I look at the names and if there is something that I can’t recognize, it’s usually something that I could have avoided buying. So, the name of an unknown gas station helps remind me that the next time I fill up the car – I need to go straight in and out, no need to go inside the store.

I think the time I invest to recognize the name of the store helps register the purchase better in my mind. If I don’t even remember the name of the place that I spent money, how can I possibly remember the purchase itself?

So, the number of times I take the store address, as it appears on the bank statement and put that on Google Maps to take a street view, helps me immensely in registering that purchase and the act of spending.

This is probably the most important factor in why it helps me be a little thriftier – because the purchase registers, not when I actually made it, but when I look it up later.

The other major reason, why this helps me is that it shows me how my balance is dwindling and then the next time I am about to spend money – I sense that the number is going to go down a little and so there is a slight hesitation in my mind.

I know this is not very scientific and I think it won’t work well for most people, but somehow it works reasonably well for me. It’s beyond me to make budgets and use online tools and in the absence of that, looking at the bank statement every day proves quite useful.

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