Millennial’s’ in the UK spend everything on living a quality life in which they don’t have to think twice before upgrading to the latest iPhone or buying a new car frequently. This hand to mouth way of living your life has no problems until you encounter a sudden emergency which requires cash outflow and you have no savings.
You will then have to take loans from banks, and then you will approach direct lenders for debt consolidation loans to settle the bank loan. This further sinks you in a quagmire of debt which destroys your financial planning.
Thus, it is better to have some liquid savings in your kitty so that you won’t have to incur additional liability to fund an emergency. This emergency could be a medical emergency, vehicle repair, house maintenance etc.
The current pandemic is exemplary of this fact wherein no one anticipated its arrival and many people lost their jobs, worked and still working on pay cuts. Thus, you should brace yourself and be future-ready for such unforeseen events.
This blog will explain some of the effective strategies and tips which you should avoid as we are slowly leaving this pandemic behind us. Here it goes:
- Learn the Art of Savings
Unless you inculcate the habit of saving a fixed proportion of your salary every month. You will not have enough liquidity at the time of emergency. Start your finance management by saving money from your total income.
Many money managers and financial planner suggest to ideally save somewhere between 15-30% of your monthly salary, depending on your take-home salary and fixed liabilities.
Many families suffered in this pandemic as they didn’t have enough savings for the medical treatment and health care expenses after one of them tested positive for Corona-virus.
Thus, from now on, you should start saving money every month and invest it on any or a combination of asset classes to fetch returns on your investment. This is done to multiply your savings and create a corpus over the medium to long-term. Ignore taking private loans and fund your purchases with your personal savings.
- Become Debt Free
Youngsters in many European and North American countries have a deep fascination towards credit cards, and they use it for shopping, at gas stations, for groceries, and almost anything. However, if you delay your outstanding payment by even a day, the bank charges 18-20% interest per day.
Besides, you are buying something you cannot afford using a credit card and incurring additional liability which can disturb your cash flows in the next few months. Also, people take car loans to buy a car, think of it this way, you are taking additional liability to buy a self-deprecating asset.
The interest component on these loans are higher and can eat up what could have been your potential savings.
And the worse is when the debt pile becomes more significant, you resort to taking debt consolidation loans to settle the previous debt. Then you start paying the new debt you have taken to clear the old debt, and this vicious cycle keeps on repeating.
The bottom line is, you should take loans but only when you are in dire need and have no other option, else avoid it. The people who had debt during this pandemic and who have also lost jobs, this pandemic became a double whammy in their life.
- Take Insurance
Suppose there is one crucial thing. Out of many, this pandemic taught is the power of being insured and perils of not having one. Sure, health and life insurance demand constant premiums to be paid, but it pays off in the long run in an emergency, or you get a significant amount at maturity. Don’t make the mistake of imaging insurance as an asset class to make money, instead is quintessentially a tool for hedging your risk. Take insurance early in your life for you and your family to avoid hefty premiums which you have to pay if you take insurance at a later stage in your life. You must read the insurance policy in great detail while comparing multiple insurance policies online to get the best deal and all the services you might need in the future.
- Create an Emergency Fund
This is probably the biggest lesson from this epidemic; one should have an emergency fund which will help him/her sail through such a crisis.
Ideally, one should have 3-6 months of his salary as their emergency fund depending on their needs and salary. This fund could be liquid in one’s savings bank account or invested in a term deposit to deal with Covid like situations as we advance. This emergency did not only mean a pandemic of this scale, but it could also be your sudden job loss, pay cut, demotion in your job etc.
You will not have to take a loan or borrow from your family or friends in an unforeseen situation if you have an emergency fund.
- Tweak Your Spending Habits
Your spending spree and habits should not ideally be the same in a post-Covid world as it was before the onset of this pandemic. You will have to make alterations in your spending habits to save more money, which will help you in more than one ways. Start with cutting back on unnecessary expenses which you have been making by far, forego those expenses which do not create any value for you.
From as simple as cancelling the subscription of the unused OTT platforms to as complex as buying a simple car, instead of a Mercedes. Buy a cheaper internet plan according to your use, limit eating in swankiest restaurants, reduce your alcohol expenditure, limit unnecessary shopping and preference towards branded apparels.
These are some of the tips which you can adopt to reduce your expenses and thus save more money.