The Way I Save Money

I read about this method to save money on some website and also realized that my fater used the similar method. It was amazing that this method to save money is so old and people knew it even when the computers didn't exist :) Now that I read about the same method on the internet, I felt a little confident about it and started following it. I have made some changes to this method based on my experience. So, it is not exactly the original method, but a little improved one, you can say!

The method I write here is a most common and most successful method to manage personal finance. I have been using this method for years, and my parents have been using this for all their life! This has really proved to be the most effective way to manage day-to-day and month-to-month spending.

All you need to do is:

• Get envelopes and write names on them. For example; Grocery, Transportation, Clothes, Misc. etc.

• Review your monthly/weekly spending on each of the items and put money into each individual envelope accordingly. For example, if your average cash spending on grocery is $100 a week, put $400 into the Grocery envelope. This is like setting a monthly limit on your grocery. Try not to exceed it, rather try not to spend all the $400.

• Put the cash in all the envelopes you named and write the amount on the envelope. Every time you spend some money from that envelope, write how much you spent and how much is left in the envelope. This helps you keep track of your available funds and helps you plan for rest of the month/week.

Try not to spend over the limits you have set but in fact try to save some money in each envelope by controlling your expenditure. This would make you think and plan your needs. If you have saved even a little amount in all the envelopes at the end of the month, consider that you have successfully planned and executed your funds for that month. Repeat the same process next month and see if you could do better.

Many people don't use it simply because they think of earning some interest on their money. For example; they might think that if they keep the money into a bank account and withdraw only when they need it, they'd earn some interest on the deposit! Of course, one can earn interest but the thing is that people lose the track, they don't know how much they have spent and how much is left in the account for a particular need.

So, if you want to keep track of it all and control your expenses and save some money, you should not go for the little interest you will earn if you kept this money in the bank. Using this method, you will actually control your expenses, think twice before you spend and at the end of the month I am sure you will have saved some.

What you do with this money you just saved? Well, There are many ways.

• You can keep the money in the same envelope and refill it next month only with the balance amount. For example: If you save $30 out of $400, the next month you could deposit only $370; which adds up with the $30 you saved and you have $400 for the next month.

• You can put this money into a bank account which you don't access frequently. In you do this for all your envelopes for all the months, soon your savings account will grow substantially and earn good interest too.

• Once you have a good idea of how much you are saving per month, you can start a Systematic Invest Plan (SIP) with that amount. You could start this SIP and invest into Stocks, Mutual Funds or by anInsurance Policy etc which will benefit you in the long run, on a rainy day.

• You could prepay your loan (apart from your EMI) and reduce your debt. By pre paying the debt, you are also saving a lot of interest you pay to the banks, credit cards etc.

You could follow any of these or if you know some other way to spend /invest your monthly savings, do drop a comment.