How to develop a habit of saving ::Business Line

If you are like most of us, spending should come naturally to you.

In a world that actively encourages you to buy products and services with borrowed money, it is indeed hard to resist consumerism. But does your spending prevent you from saving? If it does, you have a problem at hand. Fortunately, understanding and applying behavioural psychology can help you moderate your problem. How is that possible?

Look at your purse. How many credit cards do you have? Agreed, credit card is an efficient way to pay for your expenses, especially when you travel. But credit cards also make you spend more. How? It hurts when you part with your money, even if you like to indulge. The problem is that you do not feel the pain when you pay with your credit card. Why is that so?

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When you swipe the plastic at a store, you do not part with your money. Yet, you enjoy the benefits of owning the product immediately; the pain of parting with the cash comes later when you pay your credit card company. This prompts you to spend more than you otherwise would if you use cash to pay for your purchases.

Not convinced with the argument? You should, perhaps, stop using your credit cards for a month and see how much you spend. Chances are you will spend less; for each time you part with your cash, you will think twice on the usefulness of the expenditure at hand. And what if you do not?

If you spend just as much with cash as you do with your credit card, you have some serious issues to deal with. But do not worry. Here is another suggestion. You can consciously save… by linking your savings to your spending decisions.

First, ensure that you use only your monthly income to meet your household expenses. Next, each time you spend, put aside 10 per cent of that spending into savings. That is, if you spend Rs 5,000 on your monthly groceries, set aside Rs 500 as savings. You can have a piggy bank just like kids do to accumulate your savings!

Linking savings to your spending decisions limits your consumption each month. How? If you spend Rs 5,000 and save 10 per cent of it, you have brought down your total cash balance by Rs 5,500. And remember, you can only spend using available cash! The objective is to set aside money from your current income. Tell us whether you find noticeable difference in your spending habits after you follow this process. And remember to transfer your savings into investments at the end of each month!

(The author is the founder of Navera Consulting