Tapering one’s vertical lifestyle – Household savings

The one positive rub off of the current economic slowdown is that less is suddenly more. Of course, this realization has everything to do with the TINA (there is no alternative) factor. Money is no more a means; for some, it is an end in itself (not literally, we hope). Many have promptly cut back on borrowing and stalled their life upgrade plans.

But then, tapering one’s vertical lifestyle would anyway come naturally to us. Here is a happy fact: according to financial advisor, the household saving rate in the US is minus 1% of the gross domestic product-a glorious paradox which suggests that American spend more by borrowing. In India, the rate is around 24%. So we are on the right savings track. Just a few simple suggestions then to keep us firmly on it, and further contain our household budget.

Keep money inaccessible:
The final aim of any financial planner is to make one “save”. According to director at Trascend Consulting India, the best bet is to hold two separate accounts. If you are a nasty spender not sure of investing, instruct the bank to debit (a chunk of) your salary into your new account. This way, the money will remain out of sight and thus out of your debit card, which brings us to another must, ‘Hide your credit card’. If you only swipe your debit card, your expenses are automatically controlled.

Divide expenses into four categories: Mandatory fixed, mandatory variable, voluntary fixed and voluntary variable. One can start tackling each based on individual situation and preferences. It’s totally subjective.

Voluntary fixed expenses include things like gym fees, club membership and magazine subscription. Expenses we have already paid for, or committed to. Wriggling out of them could get difficult. We could perhaps resolve not to renew them.

Voluntary variable expenses include eating out, going on vacations, entertaining, and indulging in lifestyle activities and products. This is where major cutting can happen. Take eating out, for instance. One option is to reduce the number of times one goes out.

The other alternative is to take an activity such as eating out and look at it in terms of five “step-ups”- a method of lining up options which get progressively more expensive (and desirable). At the bottom would be eating at home, followed by getting a cook, then ordering food from outside, eating out at a lesser restaurant or in a club, and lastly, eating out where you have always had. Choose what fits you. Then make a conscious decision. The habit of going out for tea and coffee everyday, and spend Rs50 on it, it would add up to Rs4,000 a month. Such trimmings will greatly help the cause.

Mandatory variable expenses, on the other hand, can be curtailed and deferred, but not entirely cancelled. While there is nothing drastic you can do about them, you can delay your spending on, say, buying shoes and clothes.

But the expenses that we cannot compromise are mandatory fixed. These include rent, maintenance and utilities bills and education fees, if any.

For cheaper groceries, buy in bulk at one shot from a cooperative store or a supermarket that offers deals through the year.

Ideas for reducing overheads:
Prioritise according to a step-up. Walk, use public transport, use a car pool, drive on your own to work go in a chauffer-driven car. As far as possible, go for the first, which is not just absolutely free, but also good for your calf muscles and cardio-vascular system. Long ago, we had heard of a senior executive who walked to and fro daily from his work. Nothing eccentric about it at all, especially given the fuel fiasco.

Here are the basic rules that many ignore. Choose whichever suits your temperament. (a) Use compact fluorescent lamps. Invest in solar cookers and geysers. (b) Put a timer in the air-conditioner or increase the temperature so that the thermostat cuts off. If your AC has louvers, slant them toward the ceiling, which stores the most amount of heat. If you have little children, pack them all in your room to avoid using an AC in their room.

Refrigerator should not be placed under sunlight or against a wall exposed to elements. Attention to this little detail can save up to 15% energy.

Go for shorter cycles in washing machines. Soak clothes in detergents rather than use hot water.

Save up to 20% gas by cooking with covered lids, in smaller vessels and usually on simmer. Thaw frozen food before cooking.