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Complete Savings Plan for Low-income Earners

The complete savings plan for low-income earners provides a structured financial strategy to systematically allocate income towards essential needs and achieve long-term financial stability despite limited resources.

  • 5,661 Views
Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

The earning class in India fall into a wide range of salary brackets, with many salaried individuals earning a considerably low income. However, it is important to do proper financial planning for low-income earners to ensure that you create a reliable amount of wealth. But how to plan savings with low income in India, given the high inflation rate in the country?

The straightforward answer to this concern is changing your spending habits, budgeting for a low income, and strictly following saving strategies for a low income. Many experts believe that you should not underestimate the power of starting early. Start early, start small and slowly develop a habit of saving.

Monthly Salary Budgeting

Many experts suggest that around 40% to 50% of your monthly salary must be invested in household/living expenses, around 20% to 30% in food and necessary lifestyle. And a minimum of 20% to 30% must be summed up towards savings.

However, since you are earning a low income, you must target to save most of it and push the savings limit to above 35% of your monthly salary. Through this, you will quickly achieve your short-term and long-term savings goals and help you in accelerated wealth creation.

Read About: What is Savings Plan?

Steps to Build an Ideal Savings Plan for Low-income Earners

Establishing a savings plan is paramount for individuals across all income brackets. However, for low-income earners, navigating the terrain of financial stability can be particularly challenging. Despite this, it is not an insurmountable task. With strategic planning and disciplined execution, even those with modest incomes can build a solid financial foundation. Here, we present a complete savings plan tailored specifically for low-income earners, outlining actionable steps towards achieving long-term financial security.

Step 1: Set Clear Financial Goals

The first and most crucial step in any savings plan is defining your financial objectives. Begin by identifying short-term goals, such as creating an emergency fund or paying off outstanding debts. Next, outline your long-term aspirations, which may include homeownership, retirement savings, or education funds for yourself or your family. Setting specific, achievable goals provides clarity and motivation for your savings journey.

Step 2: Budgeting Basics

Budgeting is the cornerstone of financial management, regardless of income level. Start by calculating your monthly income after taxes and essential expenses such as rent, utilities, and groceries. Allocate a portion of your income towards savings before addressing discretionary spending. Embrace frugality where possible, opting for cost-effective alternatives and eliminating non-essential purchases. Utilize budgeting apps or spreadsheets to track expenses and ensure adherence to your budgetary limits.

Step 3: Establish an Emergency Fund

An emergency fund serves as a financial safety net, shielding you from unexpected expenses or income disruptions. Aim to accumulate three to six months’ worth of living expenses in a liquid, easily accessible account. Initiate small, regular contributions to your emergency fund, gradually increasing the amount as your financial situation improves. Set aside windfalls or bonuses specifically for bolstering your emergency fund, reinforcing its resilience over time.

Step 4: Explore Savings Vehicles

Low-income earners often assume that investing is beyond their means. However, several accessible savings vehicles cater to individuals with modest incomes. Explore high-yield savings accounts, which offer competitive interest rates and minimal account requirements.

Step 5: Leverage Government Assistance Programs

Numerous government assistance programs provide financial support and incentives for low-income individuals to save and invest. Investigate programs such as the Earned Income Tax Credit (EITC), which offers tax refunds to eligible individuals and families. Similarly, explore retirement savings options like the Saver’s Credit, which provides tax credits for contributions to retirement accounts. Maximize these opportunities to optimize your savings and enhance your financial well-being.

Step 6: Prioritize Debt Repayment

Debt can significantly impede your financial progress, consuming valuable resources in the form of interest payments. Prioritize debt repayment by focusing on high-interest debts first, such as credit card balances or payday loans. Implement debt snowball or avalanche strategies to systematically pay off debts while minimizing interest costs. Allocate any surplus funds towards debt reduction, accelerating your journey towards financial freedom.

Step 7: Cultivate Additional Income Streams

Supplementing your primary income with additional streams can accelerate your savings trajectory and enhance financial resilience. Explore side hustles or freelance opportunities aligned with your skills and interests. Monetize hobbies, offer freelance services, or participate in the gig economy through platforms like Uber, TaskRabbit, or Etsy. Direct earnings from secondary sources towards savings goals, amplifying your financial resources over time.

Step 8: Continuously Educate Yourself

Financial literacy is a powerful tool for empowering individuals to make informed decisions about their finances. Invest in ongoing education through books, online resources, or workshops focused on personal finance. Enhance your understanding of budgeting, investing, and retirement planning, equipping yourself with the knowledge necessary to navigate complex financial landscapes effectively. Share insights and best practices with peers and community members, fostering a culture of financial empowerment within your social circles.

Best Savings Plan for Low-income Earners

Individuals are faced with a plethora of investment options, each with its unique features and benefits. From Unit Linked Insurance Plans (ULIPs) to Mutual Funds (MF), and from Guaranteed Savings Plans to Systematic Investment Plans (SIPs), navigating the landscape of financial instruments can be overwhelming.

Unit Linked Insurance Plans (ULIPs)

Unit Linked Insurance Plans (ULIPs) are hybrid financial products that offer both insurance coverage and investment opportunities. With ULIPs, policyholders can allocate their premiums towards a mix of equity, debt, or balanced funds, providing the potential for capital appreciation alongside life insurance coverage. ULIPs offer flexibility in terms of fund selection and premium payment options, but they may also come with higher fees compared to standalone mutual funds or insurance policies.

Guaranteed Savings Plans

Guaranteed Savings Plans are investment vehicles offered by insurance companies or financial institutions that provide a guaranteed return on investment over a specified period. These plans offer the assurance of a fixed return, making them suitable for individuals seeking capital preservation and predictable growth. While Guaranteed Savings Plans provide peace of mind and security, they may offer lower returns compared to market-linked investments such as mutual funds or stocks.

Mutual Funds (MF)

Mutual Funds (MF) pool funds from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers, mutual funds offer investors access to a wide range of asset classes and investment strategies, catering to various risk profiles and financial goals. Mutual funds provide diversification, professional management, and liquidity, making them a popular choice for both novice and seasoned investors.

Systematic Investment Plans (SIPs)

Systematic Investment Plans (SIPs) allow investors to regularly invest a fixed amount in mutual funds at predetermined intervals, typically monthly or quarterly. SIPs offer the benefit of rupee cost averaging, where investors purchase more units when prices are low and fewer units when prices are high, potentially reducing the impact of market volatility on their investments. SIPs promote disciplined investing and are suitable for individuals looking to invest systematically over the long term.

Public Provident Fund (PPF)

Public Provident Fund (PPF) and Employees Provident Fund (EPF) are government-backed savings schemes aimed at providing retirement benefits and financial security to individuals. PPF is a long-term savings scheme with a tenure of 15 years, offering attractive interest rates and tax benefits on contributions and earnings.

Employees Provident Fund (EPF)

EPF is a mandatory retirement savings scheme for salaried employees, with contributions made by both employees and employers. EPF offers tax benefits and provides a lump sum payout at retirement or under certain conditions.

Top 7 Tips on Budgeting for Low-income Earners

Budgeting is a crucial financial management tool that can help individuals effectively manage their finances, regardless of their income level. For low-income earners, budgeting becomes even more essential in making ends meet, saving for the future, and achieving financial stability. Here are seven best saving tips for low-income earners to stretch their dollars further and make the most of their limited resources.

Analyze Your Expenses and Create a Budget Accordingly

No expert can help you budget until you do not research and analyze your expenditure. Budgeting may sound very technical to many, but it is simple math that involves the basic allocation of your monetary priorities. The rule is to create a budget that suits your financial goals.

A budget is important because unplanned expenditures can easily exhaust your money and impact your financial planning for low-income earners. Therefore, your focus on budgeting should be on allocating money for maximum savings instead of how much you earn.

Separate Cash for Expenses Every Week

A budget will certainly help you in gaining clarity over your expenses. However, a more effective tool when controlling unnecessary expenditure is a “cash-envelope” system for yourself. As per this system, you must keep pre-allocated cash for every week’s expenses and manage them accordingly. This will help you in limiting your weekly expenses.

Live With a Better Economic Sense

It is highly recommended to do shopping on paper before spending money on stuff in real life. This is the best way to save money with a low income. In addition, this helps you in fixing unnecessary leaks.

Making a list of the items you need and putting an estimated price for all of them helps you decide your priorities and keeps you in check while shopping from temptations.

Start Now! Even with Minimal Savings

The toughest part about savings and wealth creation is crossing the starting point. But, once you taste wealth-creation, you will never look back. You will gradually understand all about how to save money with low income in India and the best way to save money with low income.

Cut Off Unnecessary Expenses to Build Savings

Reduce unnecessary spending if you are having trouble saving money. Look for expenses in your budget that you can cut back on.

  1. Manage utility consumption
  2. Track your spending
  3. Avoid Unhealthy Practices
  4. Avoid Unnecessary Expenses

Increasing your savings by eliminating unnecessary expenses may at first seem painful, but it will get easier with time.

Leverage Insurance to Secure Your Family’s Future

You can have a safety net and a useful tool for saving by investing money in things like life insurance and savings plans. When used wisely, building wealth can help you achieve your financial objectives and cover future costs like a new home, marriage, children’s education, or retirement.

Prioritize Your Health

You can stop bad habits like drinking and smoking that are unnecessary. These are bad habits that, regardless of your money, should be avoided and removed from your life if you want to live healthily. The best and most sensible way to save is to do it this way.

Final Thoughts

So if you are among those earning a low income, then your best bet is having disciplined financial expenditures, researched and analyzed budgeting, predefined financial planning for low-income earners that suits your requirements, and the correct choice of investment plans to serve your financial goals. So, what are you waiting for? Start saving today and secure your tomorrow.

Key Takeaways

  • A complete savings plan for low-income earners emphasizes allocating income towards essential needs like housing, food, and healthcare before other expenses.
  • It instils disciplined budgeting practices, encouraging individuals to track expenses, prioritize spending, and minimize discretionary purchases.
  • Establishing an emergency fund is a key component, providing a financial safety net to cover unexpected expenses or emergencies without resorting to high-interest debt.
  • Setting realistic financial goals, such as debt repayment and saving for education or retirement, guides savings efforts and motivates progress towards long-term objectives.
  • Automating savings through direct deposits or automatic transfers ensures consistency and removes the temptation to spend money earmarked for savings.

FAQs


1

How does a complete savings plan differ from traditional budgeting?

While traditional budgeting focuses on managing expenses, a complete savings plan places a greater emphasis on building savings, establishing an emergency fund, and setting long-term financial goals tailored to the individual’s income level and needs.



2

What are the essential components of a complete savings plan?

Essential components include budgeting for necessities, establishing an emergency fund, adopting frugal living habits, setting realistic financial goals, automating savings, leveraging community resources, and prioritizing debt repayment.



3

How can I prioritize savings with a limited income?

Prioritizing savings involves allocating a portion of income towards essentials like housing, food, and healthcare first, followed by setting aside a fixed amount for savings before covering discretionary expenses.



4

What if unexpected expenses arise while following a complete savings plan?

An emergency fund, a key component of the plan, serves as a financial safety net to cover unexpected expenses or emergencies without derailing progress towards savings goals or resorting to high-interest debt.

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