I often find myself advising friends on the basics of personal finance. After all these years, it still surprises me to learn how little some of us know on the subject, given our advanced degrees in education. This post should serve as the first step towards bridging that gap…

We know about the good habit of “saving”, and do our best to practice it. As often as possible, we put away money in the bank for a rainy day or a future goal, telling ourselves that this is the best we can do under the circumstances.

After paying the rent (or EMI), the salaries of the domestic help, and other monthly household expenses, there is very little that remains behind.  Some months, we are unable to manage any surplus at all! After all, times are tough. And the price of nearly every thing keeps shooting upwards.

No wonder the size of our savings does not seem to keep pace with our needs and wants!

Is there a solution?

Fortunately, the answer is simple: Spend Less Than You Earn

It is a simple and effective way to remedy the situation. But few have the discipline to follow this advice. The biggest obstacle in its path is our impulse to “own” every shiny, new object we desire in a moment. Do this often enough, and you can say goodbye to any real savings you hope to accumulate in your early years.

The antidote? Spend some time thinking about the impulse purchases you tend to rack up, and eliminate those to start with. It helps to delay the purchase for a week and assess if you still want it. (Often, you will find that the feeling has passed!)

Then, focus on the biggest recurring expenses that form a part of your monthly budget. Remember, the 80-20 rule applies here. Focus on two or three major heads that contribute the most to your expenses for maximum impact.

Making changes will not be easy or without inconvenience. But, if you are constantly playing catch-up or desperately waiting for that salary cheque to come in, the rewards will be worth the effort.

You will need to figure out which trade-offs are acceptable to you and your family. For example, your rent or EMI payments may figure among the top three expense items – Can you afford to shift to a smaller place or find a house further away, to reduce this cost head?

Once you tackle the impulse expenses, and make a real dent in the top three recurring items, you should find yourself in a comfortable position to start accumulating some savings each month, without worrying about the next month’s bills.

And that’s a good place to begin from, isn’t it?!