Managing on a low income
Everyone gets dealt a different set of UNO cards
7 minutes
Most of us live from salary-to-salary and do not have the luxury to make up grand plans on how to save.
What to do
1. Track your income and expenses
The first step, as always, is to know how much money you get and how much you generally spend.
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This will give you a clear idea of what's going on so that you can decide on the way forward.
2. Understand Needs vs Wants
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A ‘need’ is described as an essential item or service that you cannot do without. This could be for example the electricity bill.
A ‘want’ is generally a luxury or something that you could immediately live without. These are the items that you can consider reducing (or removing) from your spending. This could be for example the number of takeaway coffees per month.
Once you are able to see the amount spent on each category, it becomes easier to identify the distinction between the what you need and what you want.
3. Question your spending habits
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When you have an aerial view of your monthly expenses, have an honest conversation with yourself on where to shave off for some savings.
The tips below may guide you:
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a. Phone Packages – we have several options available to decide from when it comes to telecommunication. Compare the different packages on offer from Ooredoo and Dhiraagu to decide which one is best for you. You could, for instance, look at how much data that you’re using and figure out whether there’s an underutilized balance. You could also ask your workplace if they have a plan to reimburse your phone charges if you’re expected to make several phone calls.
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b. Cable & Internet – Similar to the above, we have an abundance of choice. Granted, the prices leave a lot to be desired for (let’s save that for another conversation) but rather than leaving these expenses for granted, ask yourself how you could save.
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Do you really need the cable package with all those channels that you don’t even watch? Cable providers offer customizable packages to suit your needs. And if you’re mostly binge-watching Netflix, why have cable at all? Several news outlets offer live TV for free on Facebook anyway. Or, you know, go out once in a while (sorry).
Pro Tip!
Internet Service Providers offer you the option of buying additional data when you run out. Generally, the price per GB is much higher if you decide to buy these “Add-Ons”. For example, for one particular company, the price per GB in the original package is MVR 10, but if you were to buy an additional GB, the price is MVR 16. This may not seem much but if you bought an additional 25 GB of data, you’re overpaying by MVR 150.
Alternatively, you can consider some ideas such as:
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Instead of buying additional data each time, check your usage per month and decide on an appropriate package for you.
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Towards the end of the month, make the most of your phone data and WIFI together since they get renewed anyway and you’re throwing away data you could have used.
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Be careful of automatically renewing additional data! Some companies offer you the option to buy a once-off extra data while other choices would charge your account each month. It’s not worth it – just upgrade your package permanently and save.
c. Compare prices – there are so many shops to choose from, but we often buy without questioning the price. Before you spend your money on a large purchase, spend some time doing research. There are several outlets online and on Facebook where you can find the best price possible. And if all else is lost, why not ask them for a discount? It’s a dying habit.
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d. Reuse and Reduce – we are social animals easily swayed by peer/societal pressure. Why do you need a new article of clothing for each event or holiday? Why do we upgrade our electronics (or the entire kitchen) annually? Re-use when you can, repair when possible and reduce spending when you know that it’s only a short-lived moment of happiness.
Some other ideas include:​
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Buying secondhand clothing.
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​Despite popular belief, an MVR 1,500/- Adidas Workout Top doesn’t automatically burn off extra KGs on your fitness journey. Nobody really cares what you’re wearing if you can pull it off.
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Switching brands when grocery shopping.
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​Ask your parents on this one.
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Smart Water Use
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Collect the water from your AC to water your plants.
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A water filter is economically cheaper (and environmentally more sound) than buying those 5L bottle any day.
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Shower together
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WATTs Up
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Do a quick audit of your electronics. The higher the WATT count, the higher the electricity needed to power your devices. Invest in energy-saving equipment including light bulbs, irons and other household appliances. You may be saving money by buying cheap items, but you’ll end up paying more if they are energy inefficient.
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Now that you've figured out what you need to do, let's look at what needs to be avoided
What NOT to do
1. Unnecessary Borrowing
Borrowing money in the short term comes at a cost. Generally, the interest rate is much higher; unsecured (without a collateral/security) loans draw interest from 18% and beyond, which is larger than the average 12% for secured borrowing from most financial institutions.
If you face a situation where you need to borrow money for a short-term requirement, it is better to ask yourself why this has happened in the first place; where can you reduce your expenses or how can you manage your income better? Maybe an Emergency Fund would have been the answer.
2. Not questioning your loan & payment obligations
Following up on the earlier point, we normally take out a loan or an installment scheme but we only focus on the monthly repayment amount.
If you take a look at the end result of your borrowing, you may be paying much (much) more than you have initially planned.
Let’s say for example, you bought an apartment costing MVR 2,300,000 on 12% interest over 15 years. The final price of that decision would mean approximately a monthly repayment of MVR 27,000. Not too bad right? Well, by the end of the 15 years, you’d have paid close to MVR 5,000,000.
Here’s another example. Let’s say you decided to buy a motorbike costing MVR 65,000. If you decide to get it on an installment scheme, most likely you’ll end up paying more than MVR 100,000. The same logic goes for the upcoming iPhone as well.
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So, what's the solution
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Don’t assume that a small monthly installment means that you’re financially better off in the long run. Take a longer-term view and have a discussion with your lender.
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Don’t borrow unless you really have to. It would make more sense to save up for something than to purchase by taking out a loan.
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When you need to borrow, compare your options. Check for the best offering that balances out the monthly repayment versus the final cost to you.
3. Avoiding Bills
Be it utilities or loan repayments, if you try to avoid making that obligation, the price to pay in the future would be much higher. Repercussions could range from legal action, unproud parents and higher costs; in fact, you’re more likely to pay more in penalty interest or fines.
If you’re in a difficult situation, do not hesitate to reach out to them and try to set up an alternative plan:
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For loans, Banks may be ready to ‘restructure your debt’ which means that they may extend the loan duration resulting in a smaller monthly repayment figure.
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For utilities and taxes, the relevant institutions may offer you the option to pay in installments if you have a valid reason.