When it comes to salaried employees, saving money is a challenging aspect that troubles everyone. Creating a considerable amount of savings from salary requires continuous sincerity and discipline. Furthermore, one has to stay consistent in their efforts to save money throughout their life.
Are you a salaried employee wondering how to save money from your salary? If yes, then the following sections might be helpful.
How Much Salary Should You Consider Saving Every Month?
When we talk of savings, we talk of creating savings from your monthly income. Many of us have very little to save considering we have to meet most of our expenses from our monthly salary.
Typically, salaried employees should spend 50% of their salary on living expenses, 30% on entertainment and lifestyle, while 20% should go towards savings.
However, this general rule of thumb might not be applicable if you set some short-term or long-term goals. For instance, if you plan to purchase a house in the near term, you might have to put aside more money towards your savings plan.
What to do with your first salary? The answer lies in devising a strategic saving plan, which conveniently addresses your financial goals.
6 Smart Ideas to Save Money from Salary
Saving money might be a bit overwhelming, but it is not entirely impossible. If you have been wondering how to save money from your salary, consider the following pointers:
Plan your budget
To start with, you need to keep track of all your expenses. One of the most crucial steps to saving money in a bank involves keeping tabs on where your money is going. Consider creating a strict monthly budget and maintaining the excess salary amount in a separate account. This will help you to avoid making unnecessary expenses, thus, creating more ways for savings.
Determine ways to reduce spending
If you cannot save as much as you require, know that it is time to cut back on your expenses. Record your monthly fees in whichever way you find most feasible – whether using pen and paper, an excel spreadsheet, or a free online spending tracker application. After that, identify the unnecessary expenses, and know where you can curtail your spending.
One of the most convenient tips for saving money is eliminating non essential expenses. To do so, you can follow these practices:
- Search for free activities: Consider searching for community event listings for your daily dose of entertainment. Here, you can find several low-cost entertainment options.
- Evaluate the cost of eating outside vs. cooking at home: Try to make most of your meals at home. If you do not have the time to cook, consider searching for local restaurant deals.
- Assess recurring charges: Keep a tab of your monthly subscriptions and cancel those you do not use regularly.
- Wait a bit before you buy: You may often engage in impulsive buying, which leads to overspending. This is something you must try to avoid. If you wait a few days, you might realize that the particular item you were willing to buy was something you wanted rather than what you needed.
- Save electricity: Try to save electricity, not only for the environment but for your savings plan too. This will ensure that you do not have to pay substantial money towards the electricity bill every month.
You can also reduce your expenses towards transportation, mobile recharges, grocery shopping, credit card spending, and more.
Put your savings to action through investment
The purpose behind saving money is to secure your financial future, while staying prepared for untoward emergencies or sudden expenses. The cash you have in hand, which is readily available in your savings account is called cash liquidity. However, a mistake many people make is to retain the majority portion of their savings in the bank savings account. Since, the interest earned on the savings account is negligible, the worth of money goes down due to inflation.
Hence, keep only a bare minimum amount in the savings account to fulfil your financial expenses every month. Then, make a list of your financial goals and categories them as short term (upto 3 years), medium term (3-5 years) and long term ( more than 5 years). Here are a few popular examples of financial goals: Save taxes, buying a personal vehicle, funds for a dream destination wedding or vacation, owning a house, creating a fund for your child’s education, or planning for retirement. Based on these financial goals, you can invest in any of the following options:
- Fixed deposit (FD): The money for your short term goals and your emergency fund (for any unforeseen emergency like a job loss) should be kept in an FD that inflation proofs your money. Since your investment horizon is short-term, this is an ideal option to avoid short term market volatility risks. Ideally, one should invest at least 20% of savings in FDs. Not only are the interest rates higher than the savings account, fixed deposits are a safe and secure investment option. You can either choose to open an FD account with banks or highly rated NBFCs. Kuvera has multiple FD options to choose from, and you can book an FD within minutes.
- Mutual funds: The rest of your savings, for medium to long term goals, can be invested in mutual funds. While the risk is higher because these are market-linked, mutual funds also have the potential to give your disproportionate returns. And since you have time on your side, this helps you navigate market volatilities better. You can choose from various kinds of mutual funds based on your risk appetite. A better way to invest in mutual funds is to use Kuvera’s Goal Planning feature. This is an intelligent calculator that tells you how much to invest, and also recommends ideal investment options based on your risk profile.
Pro Tip: Let us tell you about a smarter option for liquidity than a bank savings account. You can consider investing in Save Smart through Kuvera. It is a unique basket of mutual funds that allows you to earn returns from liquid funds of top mutual fund companies in India. What’s more, you won’t have to lock in your money for long durations with this option. Instead, enjoy instant liquidity of up to Rs. 2 lakh a day and withdraw the remaining amount in just one business day.
Besides these, a few other investment options worth considering are EPF/PPF, stocks, and National Savings Certificate (NSC).
Leave no room for debts.
Learn how to manage salary by not falling into a debt trap. Remember, your ultimate goal is to save and earn interest on your savings. Thus, avoid taking loans unless it is necessary.
Save that salary bonus.
After receiving a salary bonus, most employees find it tempting to spend the reward right away. However, if your ultimate goal is to create substantial savings, consider putting that bonus aside.
Make timely EMI payments to avoid penalties.
If you have outstanding credit card payments or loans, consider paying their EMIs on time. This is because missed EMI payments can attract heavy penalties, squeezing out a significant part of your monthly salary. Moreover, missing monthly instalments negatively impacts your credit score. You can consider opting for the auto-debit facility or set reminders to avoid defaulting on loans.
Now that you know how to save money from salary, do not shy away from applying the tips mentioned above to your daily lifestyle. These tips will help you reach your savings goals as you create your strategy.
Frequently Asked Questions
How can I save money if my salary is less?
Here are a few tips to save money if you have a low income:
- Create a monthly budget
- Plan your income and expenditure
- Reduce unwanted expenses
- Take advantage of sales and discounts and avoid eating outside
What is the 30-day savings rule?
As per the 30-day savings rule, you avoid impulse purchases for 30 days. Instead of spending money on an item that you might not need, you give yourself 30 days to think whether it is an absolute necessity or not.
How can I save 50% of my monthly income?
If you want to save 50% of your monthly income, you must create a tight budget and follow it stringently. Besides that, you can also create avenues for additional income through blogging or by getting a second job.
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Check out all our “Investor Education Originals” videos on Youtube and get smart about investing.
Start investing through a platform that brings goal planning and investing to your fingertips. Visit Kuvera.in to discover Direct Plans and Fixed Deposits and start investing today.