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How to Save Money for Middle Class Family?

For a middle-class family in India, finding ways to save money and choose the best saving plan in India is critical. Lack of knowledge, depending on a single member of the family for income, and rising costs of daily goods and services, act as a barrier to saving money in a middle-class family. Thus, creating a clear budget, and keeping your funds aside for saving and investment is crucial.

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How to Save Money for Middle Class Family

Money-Saving Hacks for Middle-Class Households

How to Save Money for Middle Class Family
September 25, 2024

Table of Content

 

It is necessary to adopt effective strategies to let middle-class families manage their expenses and achieve desired financial goals for building a secure future. Hence, continue reading this blog to gain detailed insights about how to save money in a middle class family, how to choose the right plan and more.

Best Savings Options to Consider:

To secure your financial future, choosing the right savings option is important. Amidst the several options available, selecting the best one can help you grow wealth while lowering the chances of risks. Let us explore some of the best savings options you should consider:

1. Public Provident Fund (PPF)

The Public Provident Fund is one of the most popular long-term saving and investment schemes for middle-class families. There is zero risk involved in this scheme and you can invest in this fund without worrying as stated by the Indian government. Moreover, the government fixes the interest rates quarterly. You can lock your invested amount here for 15 years. Being a secured investment plan, it is eligible for availing benefits from the deduction of taxes under Section 80C of the Income Tax Act, 1961*.

2. Senior Citizen Savings Scheme (SCSS)

The senior citizen savings scheme also known as the Older Citizens Savings Scheme (SCSS) is a popular scheme among senior citizens. By opting for this scheme, senior citizens can receive a regular income. This is also one of the risk-averse saving-investment options. You can invest a maximum of INR 30 lakh in this scheme. Senior citizens residing in any country of India can avail this scheme for five years, with an extension period of three years.

3. Post Office Monthly Income Scheme (MIS)

By opting for the Post Office Monthly Income Scheme (MIS), investors can invest a significant amount and earn interest on that amount each month. This scheme is less risky and provides a steady income post-retirement. Indian post offices regulate this scheme and are eligible for all Indian citizens. The minimum investment amount is Rs. 1500. However, there are no tax benefits associated with POMIS. Before starting to invest in this scheme, make sure to evaluate your risk profile and financial requirements.

4. Equity Mutual Funds

Equity mutual funds are a type of mutual fund providing higher returns than other types of mutual funds. Investing in these funds is an ideal option for middle class families. The returns you can expect from equity funds are dependent upon the market performance. The maturity period however varies considering your financial goals. You can choose to invest through a lump sum amount or a Systematic Investment Plan (SIP). However, to minimise the risks associated with these funds, you should diversify your portfolio.

5. Unit Linked Insurance Plans (ULIP)

ULIP or Unit Linked Investment Plans are also popularly known as dual benefit plans. These plans provide both insurance and investment to you. Here, the service provider remains solely responsible for investing a significant portion of your premium amount in the market. The earned profit you receive is the sum assured. Alongside, you can choose the different categories of funds you are willing to invest in.

6. National Pension Scheme (NPS)

The Government of India launched this scheme in 2004. This investment option is best regulated by the Pension Fund Regulatory and Development Authority (PFRDA). NPS aims to provide a fixed income regularly to retired individuals. All employees employed in the private sector, public sector and even unorganised sector excluding those in the armed forces can avail this scheme. Considering your risk appetite, you can choose your contribution and investment amount.

7. Debt Mutual Fund

Debt mutual funds are a specific category of mutual funds that invests in fixed-income securities that include corporate bonds, treasury bills, government bonds and money market instruments. Investing in these securities allows investors to receive a regular source of income monthly, known as interest payments. These funds are however less risky than equity funds. If you are looking for long-term investment, continue investing in these funds as you can earn attractive compounded returns.

How do Savings Plans Work?

A savings policy, functions based on a simple idea. To start, you provide the insurer that offers the savings investment plan a specified premium. Your contributions are invested in non-market-linked securities, yielding fixed interest rate returns.

Your original investment increases and doubles over time. Following this time, you have the option to begin collecting the accrued income in one of three ways: as a lump amount after the term, as regular instalments during the income payout period, or as a mix of both, with monthly payouts and a final lump sum.

Different Types of Savings Plans

There are different savings plans, each designed to meet your specific financial goals and objectives. Irrespective of whether you invest in short-term or long-term plans, a proper understanding of the different forms of savings plans can help you select the right one that aligns with your financial goals.

Here are the different types of saving schemes you should consider before starting to save in the insurance savings plan:

  • Monthly Savings Plan

    • This is one of the most popular savings plans for middle class families existing in India. By opting for a monthly savings plan, you can get guaranteed income after paying premiums for a specific period. You can thus utilise this monthly income to meet daily expenses and provide financial support to your family in case of your sudden demise.

  • Guaranteed Return Savings Plan

    • The guaranteed return savings plan popularly known as a guaranteed savings plan provides guaranteed returns to policyholders. This is insurance cum savings plan offering fixed returns on maturity or sudden demise of the policyholder.

    Yearly premiums are paid out for a fixed tenure and policyholders receive benefits once the plan matures. The maturity period and rates of interest are pre-determined during purchasing policy. Alongside this, you can also encash your funds under this plan periodically.

  • Money Back Savings Plan

    • Money back savings plan pays you a certain percentage of the assured sum at regular intervals, instead of during maturity all at once. This assured sum amount is paid out irrespective of whether you are alive or not. With this plan, you can experience the dual benefits of periodic payouts and life coverage. This payout can be utilised further for meeting several expenses relating to marriage, education, owning a house or meeting other financial goals.

  • Endowment Savings Plan

    • An endowment savings plan lets your money grow and offers life insurance coverage. Similar to other savings plans, the endowment plan also provides you with fixed returns with benefits at the end of the policy. The return amount can accordingly be utilised for meeting financial goals that include purchasing a house, your child's marriage and more.

  • Unit Linked Savings Investment Plan

    • In comparison with non-linked plans, unit-linked insurance plans have tie up with the capital market. This plan provides the dual benefit of life insurance and investment. There are two different parts to the premium amount for ULIP. One part helps in predetermining your life coverage while the other premium part is allocated for investment in the fund of your choice. 

    However, you can expect high returns from this plan especially when invested in the long term, making it easy for investors to balance risks.

How Can a Middle-Class Family Save Money?

Due to increased costs and varying expenses, understanding how to save money for middle class family becomes challenging. However, with proper financial planning strategy and establishing disciplined habits, you can create wealth as you need. Let us explore the different methods of how to save money and reach an informed financial decision:

  • Let Term Insurance Be Your Best Friend

    • Opting for term insurance can let you save money if you are from a middle-class family. You need to invest a small amount for purchasing term insurance, if you start early and stay healthy. The yearly premium amount is also quite affordable for term insurance from the majority of insurance companies. Moreover, you can expect a comprehensive coverage amount for your family in case of your unexpected demise. Make sure to choose the right term life insurance to provide financial protection to your family.

  • Turn Saving into a Monthly Habit

    • Similar to other tasks, make your saving habit essential to attain financial stability and a separate peace of mind. Irrespective of whether you are investing in digital gold or contributing to a Public Provident Fund (PPF) account, make savings a significant part of your daily routine. It's about maintaining consistency rather than determining how much to save.

    Start to Save Following the Principle of “Pay Yourself First” by putting a certain portion of your money aside based on your financial goals, you can apply the 50/30/20 rule to manage your expenses effectively. Next, consider saving money to meet multiple goals simultaneously which can be vacation funding, emergency funding or meeting higher education expenses.

  • Building Wealth with Monthly SIPs

    • For middle class families, building wealth by investing in SIPs monthly is one of the most convenient options. With a SIP, you can invest money regularly or monthly. This approach assures you achieve your desired financial goals and objectives, regardless of market performance. By investing in a SIP, you can create a lump sum amount at the end of the tenure.

    By investing in a SIP, you can move one step forward towards wealth creation and achieving financial goals.

  • Set Limits on Your Credit Card Use

    • In an era of increased credit card usage, it is important to set limits on its use. Using credit cards frequently might drain away your savings if not used wisely. Financial advisors recommend limiting the usage to 30% of the total available credit. Staying within this limit also doesn't allow you to overspend. Another important thing is to pay out the credit card bill amount in full each month. Avoid paying the minimum amount that many credit card companies offer.

  • Create a Shopping Budget for Yourself

    • Inculcate the habit of thinking before deciding to purchase what you need or want to reach your financial goal. This decision matters in a middle-class family where managing expenses at times becomes challenging. However, if you are on a shopping spree, set boundaries to prevent yourself from overspending. Set a shopping budget and enjoy shopping without worrying about overspending.

  • Check Prices Before Spending

    • In this fast-paced era, there lies a chance of overlooking features and prices of products while purchasing. Make sure to take time to compare the product's prices before reaching a decision. Many retailers are offering the same product at different prices. Thus, comparing products can let you save. This practice is important to consider when you are dealing with any expensive item where the differences in process can be significant. This habit thus will not only help you to save more but also spend wisely.

  • Build a Passive or Extra Income

    • Employed in a single job will not be enough to meet your financial objectives in this fast-paced world. Thus, make sure to create multiple sources of income for wealth creation and provide a safety net to your loved ones in your absence. To generate passive income, you can look for renting an apartment. This will provide you with a steady income. Or else, if you have adequate time, go for freelancing or part-time work to boost your financial stability and attain goals faster and smoother.

  • Teach Your Kids to Save Early

    • Kids have no idea of how to save and earn money. Thus, it is the sole duty and responsibility of parents to teach them how to start saving from an early age. This way, they will also understand the value of money. At the very beginning, provide them with monthly pocket money and make them learn how to manage basic expenses with it and save a portion. This way, children will learn to save in the long run.

  • Talk Openly About Money with Your Family

    • Parents should carry out effective communication in teaching children how to manage money. To instil knowledge about saving money for the future, parents must discuss finances with their kids. Let your child participate in conversations about saving, budgeting and more to gain valuable insights about financial assets. This will not only make your child responsible towards financial decision-making but will also teach your child how to plan and manage your finances.

  • Make a Will to Secure Your Family's Future

    • Make sure to have a legal will and distribute your unclaimed assets evenly to prevent a lack of planning. Teach your child and other members of the family regarding savings, investments and assets to maintain financial stability in the long run. Saving money in a middle-class family might be difficult but effective planning and execution can let you achieve your dreams. To be financially secure in the long run, start investing early in small amounts maintaining consistency.

FAQs on How to Save Money for Middle Class Family

1. How can a middle-class person save money?

Saving money as a middle-class person requires a strategic approach. Begin by creating a detailed budget to track income and expenses, identifying areas where you can cut back. Consider cooking at home more often, opting for generic brands, and limiting unnecessary purchases. Building an emergency fund is crucial to handle unexpected expenses without going into debt. Moreover, investing in long-term savings plans like PPF or mutual funds can provide a steady return over time.

2. Which investment is best for a middle-class family?

For a middle-class family, investing in a Public Provident Fund (PPF) is the best option if you are looking for long-term financial planning.

3. How can a middle-class family create a budget?

A middle-class household may track their earnings and expenditures and make a budget. Their revenue sources, including side gigs, investments, and wages, should be listed. They should then divide their expenditures into two categories: variable costs (such as food and entertainment) and fixed costs (such as rent and utilities).

They might find places to make savings or reduce back by comparing their income and spending. A middle-class family can also benefit from budgeting by using it to help them prepare for future costs like emergencies and holidays.

4. How important is an emergency fund for a middle-class family?

An emergency fund is important for a middle-class family to protect family members from any medical emergencies or job loss. Alongside, having an emergency fund prevents you from adding to your debt during times of need.

5. What is a good salary in India per month?

A good salary in India per month varies considering the industry, location and experience. This salary range is however ideal for middle-class families in urban areas while individuals in senior positions expect more.

Summary

To conclude, for middle-class families in India, a mix of equity mutual funds, debt mutual funds, ULIP, and Public Provident Funds are some of the best investment plans. Opting for these plans will provide you with a perfect blend of financial stability and growth with tax benefits considering the desired financial goals and risk appetite of middle-income households.

Belonging to a middle-class family, irrespective of which savings account you choose, it is beneficial to earn interest, prevent overspending and start saving at an early age.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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* As per Income Tax Act, 1961. Tax benefits are subject to changes in tax laws.

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