Inflation is here and seems to be set to stay (and increase!). Practically speaking, inflation won’t be going away any time soon, with growing taxes, the falling rupee, and a stumbling economy. We face the reality of inflated prices every time we go for groceries and fill fuel in our cars and bikes. We can protest about it all we want, but to actually do something, we should adapt our spending habits to deal with the rising costs of living.
Let’s get into practical and doable means by which we can manage our expenses to manage our budget and save some money. There are many options to invest money in tangible assets, but we need to do several things to control our monthly expenses as consumers. Some of these may not be practical for the city where you live, but most of these would apply to the four major cities of Pakistan. The budgeting and spending tips will apply to every place in Pakistan.
With global predictions for rising dollar rates and an IMF debt burden that is growing, we Pakistanis can expect rising inflation rates over the next two years, for the very least, as stated by the World Bank. Knowing these predictions for inflation means that we have an opportunity to lock in rates and offers for financing at present rates to avoid further increases.
1. Re-evaluate your expenses and go for a house loan
Building an asset is almost the same as having cash in hand. Property prices in Pakistan’s urban areas are rising. With the current measures for encouraging real estate and house building, many options can be explored. House loans are usually booked at fixed rates, which means that your payments will be locked at a fixed amount.
If you are living on rent, it is definite that rents will rise as inflation rises. Explore options of house loans if you have a stable source of income and look for places where your loan installment would match or be less than your current monthly rent. If you can own the property, it is better to pick a locality with lower prices than renting in a better location where you will always be on rent. Don’t be stuck on brands and appearances and think practically. That being said, please remember to focus on areas where the property will be in demand and where the basic amenities are available, like water, electricity, gas, and sewerage.
Compared to rentals that can be increased every year, house loans are a more practical option to manage rising living costs. They offer the additional incentive of letting you earn towards an asset as you pay off your loan.
2. Explore savings options
The returns on your savings account are never enough to plan a savings fund with. To manage your earnings to save for emergencies, you must explore savings plans offered by mutual funds, insurance, and investment companies.
Saving through a financial institution should yield better returns than a savings account. Returns on money placed in savings certificates and fixed deposit accounts are better than saving accounts.
Investing in a savings plan for each of your children would mean focused savings that would yield returns as and when you need it. Most insurance companies offer policies that let you save up for children’s education and marriage expenses.
Many companies also offer options to include emergency withdrawals or to get an additional policy to cover medical expenses.
3. Finance your assets with loans
As long as you manage your debt to earnings ratio (how much debt you take in proportion to your income), taking debt to finance a strong business idea is a good choice. Keeping your debt burden manageable is while borrowing some money and starting a second revenue stream. Personal debt has the additional advantage of being tax exempt.
This exemption means that if you borrow money to buy an asset to earn form, you will end up with tax savings while building another income source and having a manageable debt payment. Many options can be chosen. You can borrow enough to get a bike and source it for delivery work like in bykea or careem.
You can also invest some funds in small scale food kiosks or carts. Or start an online e-commerce business with minimal investment. Both can be run on your own or through hired staff.
If you can access a larger loan, lease a car and use it for carpooling services to cover the additional loan amount. By the end of a few years, you will have a car of your own and a source of alternate income as well.
4. Improve your spending habits
An essential element of saving is to have a saving tendency. Knowing that costs will rise, try to keep your lifestyle simple. Try to opt for greener and healthier life choices. Instead of going to expensive malls and play areas for family outings all the time, take your children to parks and let them enjoy the fresh air and healthy fruits as snacks.
Instead of gaming and gadgets, let your older children play physical sports like cricket, football, swimming, roller skating. These hobbies require one off expenses for memberships and equipment but will have the added perk of making your child and yourself physically active. Most neighborhoods have sports clubs and skating parks where children can join. Your child develops a healthy hobby, and you save money by avoiding packaged indoor fun that is not healthy.
The same goes for adults. Instead of going to cinemas or restaurants for every outing, you can go for early morning or evening walks or beach drives if you live in Karachi. Many people meet up at chai hotels for tea and snacks to share.
As an incentive, start to invest the specific amount you save from eating out into a health care or education saving policy for your children. Explore insurance companies for the best possible rates and pick one that offers the best rates for monthly premium payments.
5. Be energy conscious
Commuting to work is one of the significant expenses in Pakistani cities. Look for carpooling options or office vans traveling in your route to see what works out for you. If this doesn’t work out, ensure you get a fuel-efficient car since CNG is out of the picture.
Similarly, make sure that your house is energy efficient. Get LED lights and energy-efficient devices like inverter ACs and low consumption fridges and microwaves.
Doing this is a one time expense that would reward you with lower monthly electricity bills. Yet another thing is to save on gas expenses, get solar geysers, cook meals in quicker cook options and avoid slow cooking meals.
All of the above aside, it is also important to switch off unnecessary lights, fans, and devices to cut down on unnecessary energy use.
6. Manage your grocery spending
Making savings a priority is something that we have seen our parents and grandparents do all their lives. But living in urban cities with both or single spouses working can be challenging, and many couples end up losing track of their spending habits.
Buying groceries from the nearest supermarket is always convenient but would be adding to your surplus spending list. Making a list of essentials and buying from the neighborhood grocery store or one of the larger supermarket chains will help control expenses.
Most of the larger chains offer loyalty plans that can help reduce your grocery budget. Knowing what you need and keeping to it also helps control your budget. Similarly, manage your meals so that there is variety, and no one wants to pick an eat out option.
Plan out meals for the week with the entire family’s input to have consensus, and everyone owns the menu. Set days or limits for eating out so that everyone knows when and what they will eat out if needed.
7. Don’t buy trends
The latest sweater, the trending phone model, the latest burger in town are all gimmicks to make you spend money that you shouldn’t be spending. We all get caught up in these hot items, and many of us buy them and stay out of budget. The influencers and personalities promoting their use earn at our expense.
When you need to buy clothes, buy durable, classy clothes that will always remain fashionable. A simple black or white suit is always classy for men and women.
Controlling spending allows you to save money for genuine needs and emergencies.
A basic rule of thumb is to think about what the expensive item will be worth in 6 months or a year. This is particularly effective for female clothes. Clothes that are trending and all the rage in one month are considered ‘old’ or outdated by the mid of the season. To avoid getting trapped and spending unnecessarily, buy a few mix and match items and try to avoid getting trapped in the fashion trap.
8. Be friends with sales
Those of you angry with point no. 7 above, this one is for you. Avoiding trends and staying simple is all good, but for those that can’t resist the charm of a branded price tag. Make sale shopping your new hobby. Many parents I know buy their kids’ stuff from season end sales. Doing this allows them to buy quality products at affordable prices.
Many families shop from outlet malls. They get branded goods and at low prices.
9. Spend on quality products
When you buy a long term good, like a fridge or a washing machine, buy a sturdy product. For instance, instead of buying a local machine that you will need a maid to operate, spend some more and buy an automatic. This will let you save on ongoing maid expenses as well as energy expenses.
10. Make a budget and follow it
Having a budget is a definite plus at any time of life. During inflationary times, having a budget allows you to keep track of where your money is going and which heads will take up more money in the future. For instance, if you start a family, healthcare expenses will grow along with grocery expenses. If your employer doesn’t offer pregnancy or childcare coverage, you will need to put aside money for this.
Budgeting allows you to see where your money is being spent and if you need to control it. Budgeting all expenses will highlight where you spend too much money under a particular head. For instance, if your lunch expenses are over 10,000 a month, maybe you should reevaluate your options for lunch. You can opt for a lunchbox from home or have home cooked meals delivered. Or choose both, as and how it suits your needs.
The high inflation rates in our society at present and the high cost of living in Pakistani cities are making it difficult for people to manage their monthly expenses effectively. However, big cities have better earning opportunities and better growth potential for young families starting their savings and earnings journey.
Following any of the tips given here can help you manage your budget and build up an additional source of income to help with living expenses. These are all options that can apply to almost all of Pakistan’s urban towns and cities.
Like many other challenges in life, inflation can be met with some common sense, some financial planning, and by making sensible, researched financial decisions. Knowing that expenses will increase and planning for this would make it easier to manage them. At this stage of the economy, it is advisable to shop around for a savings scheme with any insurance company that allows you to save for any unexpected event like a sudden illness, unemployment period and plan for the rising costs of living.