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Tuesday, August 28, 2012

Five tips to avoid wasting money

Are you finding it impossible to save every month? While it's easy to pin the blame on high inflation, perhaps it's your spending behaviour that is responsible for the higher outflow. Go through these common reasons for money wastage and the ways you can plug them.

1.Don't roll over your credit card balance

Debt qualifies as one of the biggest money wasters. While good debt, such as a home loan, can help you build an asset, a bad debt like rolling over credit card balance can deplete your savings. In fact, it's one of the worst types of debt because of the high interest rate (typically 12-42% per annum) that credit card companies charge. So, if you have a Rs 15,000 balance on a card that charges 3% interest every month, you will have to pay Rs 450 a month. Over the year, it will add to a sizeable Rs 6,386 (if the interest is compounded), which translates to an effective interest of 42.58% per annum. So, pay your bill in full every month. However, credit cards can also be beneficial if you always pay your bills on time and in full, since you can build a good credit history. Besides, most cards come with enticing offers, such as cash back and reward points. Take ICICI Bank's Platinum credit card, which offers three points for every Rs 100 spent. On collecting 2,000 points, you get a gift voucher of Rs 500 of a popular retail store.

2. Keep vices at bay

An addiction can become a money-sucking black hole. If you smoke five cigarettes a day, more than Rs 10,000 of your wealth goes up in smoke every year. The gutka users, who consume five pouches a day, are chewing up almost Rs 7,000 in a year. These vices don't just affect your health and eat into your annual expenses, but also result in a higher premium when it comes to buying health or life insurance. For instance, a 30-year-old non-smoker will pay nearly Rs 4,100 a year for an online insurance cover of Rs 50 lakh for 30 years, but if he smokes, the premium will jump 40% to Rs 5,800. To find out how indulging in vices can leave you poorer in the long run, read our story 'Can you afford to see Rs 52 lakh go up in smoke?' (March 5-11, 2012).

3. Don't keep gadgets on standby
Of the total electricity consumed in an Indian house every year, nearly 5% is used by gadgets on standby mode, according to the data released by the Bureau of Energy Efficiency in its report, Standby Basket of Products, in 2010. The electronic items that display a clock, such as a microwave or radio, or those that operate through a remote, such as DVD players and air conditioners, are typical culprits. For instance, an air conditioner consumes 40 watts an hour on a standby mode. This means that you're adding about Rs 75 to your monthly electricity bill for no reason (read 'How to slash Rs 3,500 on your power bill', February 6-12, 2012). The obvious way to lower your electricity bill is to pull the plug on these gadgets, literally. If you are too lazy to turn off each power point individually, get a power strip where you can plug in all your gadgets. Switching off the smart strip will cut the power supply to all gadgets.

4. Save on banking transactions
In the past few months, banks have revised fees for various services that were free till now. So, if you don't keep track of these revisions, you are likely to see your money trickle out as penalty. For instance, several banks have made the maintenance of minumum balance in a savings account mandatory for each month instead of a quarter, and the penalty for non-compliance has also been raised. Similarly, the 12 free branch transactions in a quarter have been reduced to four in a month, again with a rise in penalty. Phone and Net banking are a good way to avoid some transaction fees.

5. Ask for discounts

Bargaining is your birthright, so never be embarrassed to ask for a discount, whether you're buying a laptop or a car. Every dealer is keen to make a sale, so he'll be willing to compromise a bit on his commission. Usually, you can have the price lowered by 5-10%. The trick to bargaining is to do your research well. Check online stores and visit a few brick-and-mortar shops to check the variation in prices. You can also ask for a discount if you pay by cash since this saves the store the cut it has to pay the credit card company. You should also ask for coupons at various eateries, mostly fast food joints, and supermarkets if you've spent a sizeable amount while shopping. These coupons can help you save money the next time you shop. While dining out or booking a movie, check which credit/debit card offers a good deal. For instance, if you book a movie on using a Visa card, you could currently get 25% off on the price. 
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