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How to be a smart spender

You don't have to give up all the good things in life just because the economy is down. All you need to do is make small, but long-term, changes. Where to cut costs? Buying concerns

Consumer confidence in India is higher than in most countries, says an AC Nielsen survey. But every day we read about people cancelling their holidays, putting off buying big-ticket appliances, even postponing weddings waiting for the economy to turn a shade brighter. So who has it right? The survey or the newspapers? We think there is much to be said for both. Consumers in India are tightening their belts, but are not getting as hysterical or anxious as those in countries like the US. We are only putting off spending on luxuries.

Will a time come when we shall have to start thinking twice about buying the necessities? We hope not. In fact, we see little reason for you to make a serious dent in your lifestyle. With a few adjustments, a little wriggle room, you can continue to live the good life, ignoring the fact that your bonus this year couldn't have bought a peanut. But you'll have to go about it methodically. In a way, it's like going on a diet. A crash diet for your finances, eliminating all the good things you've become used to, will most likely lead to another spending binge later. It's better that you make small, but long-lasting, changes in your spending and savings patterns. And when the recession ends, you'll still be well off.

Shift From Lifestyle to 'Value For Money'
Retail
Everyday usageBig-ticket itemsImpulse purchaseHigh-end luxury
Groceries, FMCG, beveragesHome furnishings, electronicsBooks, music, stationery, travelApparel, fashionwear
Value formatPeople are buying products which offer value in the long termRetailers are giving discounts to increase salesRetailers are offering discounts
DIFFICULT TO CUT EXPENSESMODERATE CUTS POSSIBLESCOPE FOR SUBSTANTIAL CUTSCAN BE CUT DRASTICALLY

Make A Plan

You don't really need to go to a financial planner for advice. Just go to your grandmother, and you'll hear pretty much the same thing: plan well if you want to succeed. Obviously, none of us really planned for a slowdown of this scale, but it's not too late to start. Getting your household expenses down to a sustainable level and maintaining them isn't hard, but it takes some effort and a little clever thinking.

Track spending: Before you can make any kind of a savings plan, you need to know how much you spend. When you actually settle down with pen and paper (or your favourite spreadsheet application) and list out what you spend in a month, you might be shocked. Some of us, in fact, may not even realise what we spend on.

Ideally, track every expense for a month. At the end of every day, make a list of all your expenses, from the tip you give to the parking attendant to the electricity and phone bills. If you think this is too much work and you don't have the patience or time to do this on a daily basis, collect the bills and receipts for everything you pay for and throw them into a shoebox. At the end of the month, take a few hours to add them up.

A friend takes an even simpler (and far less haphazard) route; she simply uses her debit card instead of cash and lets the bank track her expenses. Since almost every shop and service provider accepts debit cards, this is an extremely simple solution. All you need to do is get a monthly bank statement, or if you use the Net banking facility, track it online. Whichever method you use, the end result is likely to shock you, so brace yourself.

Budget: Once you have an idea about how much you spend every month, you can make a plan that will help meet those expenses without breaking the bank. For instance, if you spend Rs 3,500 on movies every month, you can cut it down by renting DVDs instead. This could easily save Rs 2,000 a month and you still get your entertainment.

While creating a budget, be realistic. You might be tempted to weed out all the little indulgences that you take for granted—occasional drinks with friends, eating out when you don't feel like cooking, trying an upmarket salon…. But creating a budget that takes care of only your 'needs' (accommodation, transport, food, water, power) and totally ignores your 'wants' is an exercise in futility. It's unsustainable because even if you manage to stick to it for one month, you will break out and spend far more the next month.

The trick to creating a sustainable budget is to balance your wants with your needs. Nailing yourself to a strict needs-only budget can get you through a crisis, but if you're trying to spend less than you earn over the long haul, you have got to make room for a few indulgences.

One of the best ways in which you can budget for your 'wants' is to keep aside a monthly 'indulgence fund'. Much of the advice today is extremely puritanical: put paid to impulse buying, say the experts. But honestly, how realistic is it? If your colleagues are heading out to the pub for a few drinks after work, you're going to look like a scrooge if you never go because you 'don't want to spend outside your budget'. If you set aside an indulgence fund, however, you can manage to go out, buy a trinket or a fancy gadget that you really don't need but which makes you happy. Go ahead and give in to those impulses; just make sure you have planned for them.

Om Prasad, 68
Om Prasad
After retirement, he moved to Bhiwadi in Rajasthan and rented out his house in Delhi.
Rs 12,000 is the rent he gets every month from his house in Delhi, which augments his pension.
"Given the high cost of living in Delhi, moving to Bhiwadi made sense. I can still visit my friends in Delhi once a week."

The Cutbacks

Yes, we did say that you could maintain your current lifestyle without much change despite the gloomy economic scenario. But money is tight, and you will have to make some allowances for that. This means cutting back on some expenses.

Delhi-based teacher, Pragati Bhuyan, is clear that she will have to make some allowances for the downturn. She says, "I'll avoid impulse and luxury buys, but for my necessities, I'm not going to change my preferred shopping venues or opt for cheaper brands." If you aren't like Bhuyan and want to be able to indulge yourself occasionally, look at how you can cut the existing costs. It will give you something with which to splurge.

Obvious cuts: The annual subscription model is great for businesses and you might actually be saving a lot of money—if you really use the product or service that you're paying for. Take, for instance, the memberships you took for several hotels and clubs. How many times did you avail of the discounts they offered on food, beverages and other services?

What about that gym membership that you took? Do you go there even once a week? And the 'unlimited usage' plan? Do you go online for even an hour a day?

As most of these payments are on an annual subscription model or you've opted for an automated bill payment system, you don't realise that this adds to your monthly outgo. Change your gym membership or see if you can pay per hour if you're not a regular exerciser. Cancel the club and hotel memberships—or at least some that you don't use too often. Track your phone and Internet usage and choose a better plan. This simple exercise could save you hundreds, if not thousands, of rupees every month.

Bundle services: Harish Gopal, a management consultant in Bengaluru, has a Vodafone mobile phone connection, Airtel broadband, a BSNL landline and a Reliance data-card. All of which he swears he cannot do without.

We calculated the costs and found that if Gopal were to take all the services from a single service provider (and most of these companies are now offering a bouquet of services), he would pay 15% less every month. That's a lot of money.

You might be able to save even more if you could convince the company to waive deposit or installation costs as you are taking so many services. If you want to cut your cable bill, you might want to consider the new TV service offered by some Internet service providers and see if your ISP will give you a good deal on the entire bundle. Even if you have shopped around carefully and chosen the cheapest plan from different service providers, you might find that the combined bill from one provider is still lower.

Save 10%: Make this your guiding principle, your motto for these times, if you will. Stick it up over your workstation and on your fridge. It's a simple enough concept: save 10%, no matter what you're spending on. Treat it like a game and find creative ways to save 10%.

Use the discount vouchers that you throw away unread. Take advantage of two-for-one offers when shopping for household essentials and groceries. Save 10% on your electricity bill. Instead of the token Earth Hour, make it a habit to turn off lights when you leave a room. If you can, switch to energy-efficient appliances.

Save 10% on transport costs by car-pooling or by using public transport two days a week. Walk to shops that are not too far away— you will save on transport costs, and if you do it regularly enough, you could even do away with the gym membership. Save 10% on your phone bill by switching to a better plan. It could be fun initially, and by the time the fun wears off, you would have formed the habit of saving 10%. When you next calculate your spending, you'll be amazed at how much you've managed to cut down without even knowing it.

Small Changes

Saving 10% doesn't seem like a big deal, but you end up saving a packet. You can save even more by making small, often undetectable, lifestyle changes. Cutting down on fancy coffee, carrying lunch to office, buying economy packs of cereal… they all add up.

Buy fresh: A bottle of ginger-garlic paste doesn't seem big enough to bother about while making a budget. But that jar costs around Rs 50. For a fraction of this amount, you can buy fresh ingredients and make the paste at home on a weekend. A jar of peanut butter can cost up to Rs 600 (fancy, imported stuff); you didn't know you could make it at home in a flash, did you? It will cost you about Rs 15, takes little time and is incredibly easy. Take a couple of hours a week to put together homemade convenience foods and you'll find that you've saved a huge chunk on your grocery bill.

Eating out: Most people consider eating out almost a necessity. Bring lunch from home and you can save around Rs 30,000 or more a year. Putting together a sandwich in the morning is not going to eat too much into your time and it costs a fraction of the gourmet version you order for more than Rs 100. Chaitali Murdeshwar of Mumbai has realised this. She says, "I have cut down the frequency of dining out compared with last year," adding, "It's very important to build a nest egg in such uncertain times."

This doesn't mean you should give up eating out altogether. If you eat out or order in every day, cut it down to twice or thrice a week. Check the bill. If a service or delivery charge has been included, there is really no need to give a tip. That money has already been included in the bill.

Deepak Sharoof, 64
Deepak Sharoof
As he travels frequently to Shimla from Delhi, he has bought a house to save on hotel bills. He also earns by letting it out.
Rs 40,000 is the amount he saves in accommodation expenses in a year. He also earns rent.
"Spending for the long term seems very difficult at an uncertain time like this, but it has definite benefits for me."

Book in advance: Impulse holidays are all very well, but if you really want to save, book in advance. Whether it is air tickets or hotels, booking ahead not only gives you the best rates, but also the ideal seats or rooms. Don't bank on lastminute discounts. They are offered, yes, but they also come with a host of terms and conditions and might curtail your options.

Go to the sales: Buying clothes and shoes during sales will save you a packet; discounts can go up to 75% on branded stuff. Karthika Gopal of Chennai says, "I buy casuals at the export-reject sales. The quality of clothes matches that of branded goods and the cost is ridiculously low." Most bookshops also have annual sales, so instead of paying the full price, wait for the sale and pay half the price or less. Apparently, even designer wear costs less, if you buy the last season's clothes.

Use the Net: There's a world of entertainment online—and most of it is free. There are free (and legal) downloads of books and music, and online video sharing has ensured that almost any movie clip or TV show is freely available. The Websites of popular TV channels— domestic and international—allow you to watch popular episodes online. So, instead of paying up to Rs 500 for a DVD or Rs 300 to buy a CD just because you like one or two songs, go online and enjoy. Some Websites will even let you burn the songs onto a CD.

Do it yourself: We have already said how making your own convenience foods can bring down your grocery bill. You can eliminate your gym membership if you aren't a regular gymer; just go for a walk or an early morning jog every day. When you order food from a restaurant, opt for takeaways instead of home deliveries and you will save on delivery charges.

When You Shop

Whether it's clothes or toys or home appliances, there are ways in which you can save without compromising on what you buy. Just remember that spending is spending, whether you use cash or a credit card. Very often, just because cash doesn't change hands, we decide that we can afford to buy much more than we actually can. Before you get to the billing counter armed with plastic, ask yourself, 'Would I buy this with cash?' If the answer is 'no,' then don't make the purchase.

False economy: It's not a bargain if you don't actually need it. Sales and coupons aren't gifts from the shopping gods but are ruses designed to get you into the store. One recent study found that coupon-clipping supermarket shoppers spent 8% more than the coupon-free buyers.

Also, when it comes to groceries and household essentials, you don't have to buy it all from the upmarket single store. Your neighbourhood kirana store might not give you shopping carts and air-conditioned comfort, but you'll get the same or similar products at a lower price.

Go online: While we prefer to see and feel before we buy something, the Internet can be a very useful resource to do your homework. Apart from online shopping, where you can get some great deals, use the Net to get information and offers about high-value purchases like consumer durables, some electronic gadgets or even cars. Several Websites let you compare prices and features of different models free of cost.

Look at the price tag: It sounds like a joke, but an increasing number of shoppers look at the brand rather than the price. More often than not, they hand over their credit cards without looking at the bill. Also, many of us automatically pick up our favourite brand of toothpaste or deodorant without looking at the price. In all likelihood, there are comparable products on the same shelf costing far less. It pays to keep your eyes open.

Pre-owned makes sense: If you absolutely have to get a larger car, need a second refrigerator, or need to furnish the guest room, consider buying used stuff. The cost of a second-hand fridge or a new one with a minor flaw, for instance, is negligible when compared to the price of a new one. And if you buy from reputed dealers, quality is generally assured.

Pragati Bhuyan, 64
Pragati Bhuyan
Has cut down on impulse and luxury buys, but is not in favour of switching to cheaper brands.
25% This is what she is saving on her discretionary shopping bills every month.
"Savings were important earlier too, but given that nobody knows how long this downturn will last, they are now a necessity."

Drastic Changes

There is a possibility that you have been living way beyond your means for too long. Or a pink slip might have caught up with you. Whatever the reason, what do you do if you simply cannot make ends meet despite stringent budgeting? You will then have to take decisions that will affect the whole family. You might need to sell some assets (like a car, a house or jewellery) to clear debts, and in some cases, look for cheaper educational institutions for your children.

Before you uproot them, discuss the changes with all the members and go through your finances with them. After all, everyone in the family should be aware of why and how they will need to cut costs.

Move houses: If you are living in a rented house, the most obvious cutback is on the rent. You can save a huge sum by moving to a smaller house or to a different locality. Along with lower rent, you can also save on utility payments. If you choose wisely and look for a place near the train or metro station, you can save on transport costs as well. If you live alone, consider looking for a flat-mate. Your rent comes down immediately, and you also split the utility bills.

Relocate: In some cases, moving to a different part of the country might make more sense than just moving house. You could consider shifting to your native town or where the cost of living is lower. Om Prasad, now 70, moved to Bhiwadi in Rajasthan after he retired because the cost of living there was far lower than in Delhi. The rent he earns from his house in Delhi augments his pension.

But moving so far might not make sense for working people. If you need to be close to the city, consider moving to the suburbs and commute. The cost of living in suburban areas is generally noticeably lower than in the city.