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How to Plan Savings from Salary?

It is important to save a portion of your salary every month for future or emergencies. This can be achieved by considering different investment options. Read ahead to know more.

  • Jun 13, 2022

Key takeaways

  • Create a savings plan after proper financial research about your expenditure and financial commitments.
  • The first step to determining your savings goal is to assess your current expenses and financial obligations.
  • Divide your in-hand money into three equal portions. 30% of income is spent on wants, 50% on needs, and 20% is set aside for savings and investments.

We all know that having a savings plan will serve as a road map for wealth creation and better financial stability in your life. When you are a salaried employee, your source of income is stable and fixed. Now, the question is how to save money from my monthly salary. Create a savings plan after proper financial research about your expenditure and financial commitments. You can certainly ensure a safe and financially stable future for you and your loved ones.

Savings Plan

How Much of Your Salary Should You Save Every Month?

Saving money is an essential part of financial planning, and one of the most important questions that arise while managing your finances is, how much of your salary should you save every month? While there are no hard and fast rules to determine the exact percentage of your income that you should save, it is essential to establish a realistic savings goal to secure your financial future.

The first step to determining your savings goal is to assess your current expenses and financial obligations. This will give you a better understanding of your disposable income, i.e., the amount of money left after you have paid all your bills and other financial commitments. Once you have a clear idea of your disposable income, you can determine the percentage of your salary that you should save every month.

When deciding how much of your salary to set aside each month, your income is the most important factor to take into account because, in some ways, it restricts you. When placing money aside from your monthly salary, your goal should be to save more than you earn.

You are required to divide your in-hand money into three equal portions. 30% of income is spent on wants, 50% on needs, and 20% is set aside for savings and investments. By doing this, you will have established buckets for everything and be operating within each bucket’s allowable limits.

But this regulation does not take into account your own objectives. For instance, if you only save 20% of your income, it will take you a very long time to earn enough money for a down payment on a house. What about other short-term objectives like vacations or long-term objectives like retirement?

You need to adjust the rules when setting up a savings plan to achieve your short- and long-term financial objectives.

Such a strategy necessitates self-control and meticulous calculations, but it will unquestionably get you where you want to be regarding your financial objectives.

Did You Know?

The first documented evidence of savings dates back to ancient Egypt, where people stored grain in granaries as a way of saving for future consumption.

How To Save Money From Salary Every Month?

The first and most important solution has a straightforward savings plan that covers all aspects of saving and wealth creation for every salaried employee who is looking for an answer to questions like how to save money from salary each month or what percentage of salary should be saved. The best way to save money are listed below.

1. Be Reluctant To Take Money Out Of Your Wallet/Digital Wallet

Incorporate this rule in your life if you want to save money from your salary. This will not only help you in saving more money but will also help you in being reasonable with your expenditure. The more you control your expenses, the more you think about them, and the more you save. So the next time you go to the market and get lured by a product, you will be extra careful. This will force you to think about the requirement of the product/service and its urgency.

2. Make A Budget To Suit Your Needs

Budgeting will help you get an insight into your monthly expenditure and financial commitments. Not only this, but it will also help you evaluate and understand your unnecessary monthly expenses. If you find yourself asking the question of how to save money from your salary every month, then having a monthly budget is a good place to start.

3. Implementing The Budget And Following It Strictly

You must ensure that the goal of your budget is to save a good amount of your salary. Once you have a savings-focused budget, all you have to do is sincerely follow it and allocate a dedicated cash amount to yourself every week for miscellaneous expenses like pocket money. This will help you control your expenditure, and, at the same time, it will also help avoid unplanned expenditures.

4. Avoid The Penalty Charges

Once you start your savings, ensure that you don’t have to pay even a penny extra as a penalty charge. Be proactive about your EMI deadlines and other billings, and ensure you pay your dues on time.

5. Start Investing In Smart Savings Products

Investment is a very important aspect of saving money from salary and helps largely in wealth creation over time. Additionally, with some modern investment tools, you also get security for emergency situations. For example, a savings product that offers both the option of investment & insurance in one product.

Investment options to save money from salary every month

Saving money from your salary every month is crucial to secure your future financially. It is important to find the best investment options that can help you grow your money over time. The options available to you can vary depending on your financial goals, risk tolerance, and investment horizon. Here are some of the best investment options to save money from salary every month.

1. ULIP (Unit-Linked Insurance Plans)

An insurance company may sell a unit-linked insurance plan, which, in contrast to a standard insurance policy, offers investors both insurance and investment under a single integrated plan.

2. Guaranteed Savings Plans

Most guaranteed savings plans, also known as guaranteed return plans, are non-participating insurance plans that offer endowment assurance at a set amount. In this insurance plan, you will be required to pay premiums for a predetermined period of time, and when it matures, you will be assured of receiving a benefit.

3. Mutual Funds

Mutual funds are a type of investment fund that pools money from many investors to invest in stocks, bonds, or other securities. They offer investors access to a diversified portfolio of stocks and bonds, reducing the risk of investing in individual stocks or bonds. Mutual funds also offer professional management, making them a suitable option for those who lack the time or expertise to invest on their own.

4. Fixed Deposits

Fixed Deposits, or FDs, are one of the most popular investment options in India. They offer a fixed rate of interest for a specific tenure, making them a secure investment option. FDs are also flexible, allowing you to choose the tenure of the deposit, from a few months to several years. You can also invest in multiple FDs to stagger your investments and improve your returns.

5. Public Provident Fund

Public Provident Fund or PPF is a long-term savings scheme backed by the Government of India. It offers a fixed rate of interest and a tax-free return. The investment in PPF is locked in for 15 years, and the interest rate is revised every quarter. The returns are guaranteed by the government, making it a safe investment option.

6. Equity Linked Savings Scheme (ELSS)

Equity Linked Savings Schemes or ELSS are mutual funds that invest primarily in equity shares. ELSS funds offer tax benefits under Section 80C of the Income Tax Act. They come with a lock-in period of three years, providing investors with the opportunity to earn higher returns by staying invested for a longer period. ELSS funds can be a high-risk investment option, making them suitable for investors with a higher risk appetite.

7. National Pension System (NPS)

National Pension System, or NPS, is a government-backed retirement savings scheme. It offers investors the opportunity to invest in equity, debt, or a mix of both. NPS also offers tax benefits under Section 80C and Section 80CCD of the Income Tax Act. The returns on NPS depend on the performance of the underlying assets, making it a higher-risk investment option.

Wrapping Up

Now that you have the answer to “how to save money from your salary every month?”, you must start saving money from your salary as soon as possible. Remember - small beginnings will compound into bigger results. It will help you build better habits in the long run as well!

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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- A Consumer Education Initiative series by Kotak Life

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