There are two essential things about rich people. First, they know where to invest, and the second thing is they know how to cut down expenses. You cannot get away from your bills. However, some of these bills are useless, and many of these expenses are not needed. The important aspect of money management is saving first and then spending whatever money you leave for yourself. If you think your household bills are on the higher side, you need a proper audit of your accounts. Scan your statements in detail, looking for every penny spent. If you think a particular expense is wasteful, cut it down immediately. The first step in saving money is taking financial control of your costs. Money management is all about common sense. All you need is to invest in the right places and cut down on wasteful expenditures. There are a few calculations that you should know before getting started with the ways to save money.
5 Financial Formulas Of Money Management
Compound Interest. You must have learned about compound interest in school, but did you realize how powerful this becomes with the time factor? You would have also heard financial advisers making statements about the power of compounding. Compounding is all about earning interest on the principal and accumulated interest. The longer the duration, the more significant its potential will be.
Inflation. Inflation lowers purchasing power. Have you made a good saving plan that will fetch you a fair amount after five years? The sad part is it may not be able to beat inflation. Remember this formula to calculate the inflation rate.
Inflation rate = Amount * (1+ Inflation Rate) ^ No. Of Years.
- Purchasing Power. If you want to know the purchasing power of $1000 after ten years at a 5% inflation rate, apply this formula.
Inflation = 1000/ (1+5%) ^10 = 613.90
The value of $1000 will decline to $613.90.
- Loan EMI. Equated Monthly Installment is a general term since most of us have taken loans. It may sound equal, but it is an unequal matrix of interest and principle.
EMI = (A*R) *(1+R) ^N / ((1+R) ^ N) – 1)
[A is the Amount, R is the rate of interest, and N is the number of years]
- Liquidity Ratio. It may sound like a complicated term, but it is not that complex. This ratio indicates the overall financial position of an individual. This ratio is calculated as follows:
Total Liquid Assets / Total Current Debits. This ratio should always be greater than 1 for good financial health.
5 Genius Ways To Save On House-Related Bills
Cut Down Electricity And Water Bills
Do an electricity and water consumption audit; the significant dent in your pocket is made by these two. Make your house more energy efficient by sealing all electrical leakages. Every degree decrease in temperature from the thermostat will reduce your bill by 5%. Get energy-saving appliances to cut down the electricity bill. During the daytime, switch off the lights; choose adequate ventilation with transparent windows for sunlight. Keep your refrigerator stacked up; an empty fridge will consume more electricity. Use fans more often than air conditioners; don’t use both fan and air conditioner together; it will lower the cooling effect by 5 degrees. Solar heating panels are energy-efficient and cost-effective to install. Always remember to switch off the appliances when not in use.
A toilet leak can waste 250 gallons of water a day. Inspect all the places for water leakages and get them fixed. A longer shower can waste a lot of water; take a quick shower instead and avoid using a bathtub. Install aerators; these will slow down the speed of water that comes out of the tap shower. Do up your laundry only when your washing machine is full of clothes, never wash a small number of clothes every day, and do all your washing once or twice a week. This way, you will save water and electricity.