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How to save money from your salary?
Don't we all work hard every day to earn a decent salary that helps us maintain a good lifestyle? It is our salary every month that helps us pay for rent, EMIs, utility bills, groceries, etc. ...Read More
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How to save Money from Salary every Month?
Table of Content
No matter what your salary is, whether Rs 50,000 per month or Rs 2 lakh per month, a simple rule that can solve your ‘how to save money from salary' question is the 50-30-20 rule. This rule asks you to break down your salary into three buckets. The first bucket would have 50% of the salary, which goes towards needs, and the second bucket would have 30% of your salary, which goes towards wants, and the remaining 20% of your salary would go towards the third bucket of savings as well as investing. Now, let's also understand each bucket—needs, wants, and savings.
50%: Needs
Simply put, needs are the things that we absolutely require for survival. Needs include clothes, electricity bills, groceries, house rent, etc.
As per the 50/30/20 rule, exactly half of your post-tax income should ideally be used to take care of needs. A minimalistic lifestyle can help you stay limited within the 50% rule for needs and ultimately help in also maintaining 30% for wants and 20% for savings and investments.
30%: Wants
Once you are able to limit your needs to 50% of your post tax income, you would then need to sort out your wants. 'Wants' are a level above needs. They are not absolutely needed for survival but are something you would aspire to have, such as dinner and movie outings, vacations, etc.
20%: Savings & Investment
The last concept of the 50-30-20 rule that can help you when in doubt about how to save money from salary is the savings and investment plan part. Once you have sorted the needs and wants buckets, you need to think about your future planning. This 20% bucket would help you accumulate a significant corpus that would take care of your future financial goals.
Besides the 50-30-20 rule, here are some key ways through which you can save money from your salary every month:
Avoid spending money from your wallet or digital wallet
Create a budget that fits your needs
Stick to the budget you created
Invest in smart savings options
If you want to save money each month from your salary, it's important to follow some money saving tips. The more carefully you manage your expenses, the less pressure you’ll put on your wallet or even your digital wallet. So, the next time you're shopping online or at a mall, try to avoid unnecessary splurging on things that catch your eye. By doing this, you’ll reduce your spending every day and month, helping to boost your savings.
The habit of creating a personal budget every month can go a long way in helping you save money. When contemplating the thought of how to save money from salary, budgeting is among the first steps you need to take. This will help you get a clear view of how much you earn, how much you can spend, and how much you must save every month.
Once you have assessed your income and expenses when creating the budget, it is equally important to stick to the budget every month. A savings-focused budget would help you in both the short and long term and enable you to create a significant corpus for various financial goals, as well as to maintain an emergency fund. So, make sure you sincerely follow the budget and do not just let it remain a task on a piece of paper.
Apart from budgeting, you also need to invest so that you can make your hard earned money grow. Wealth creation can only take place once you begin investing your money over time. Factor in your financial goals, salary, investment horizon, risk appetite, etc, before zeroing in on any investment option.
Investment options to save money from salary
When wondering how to save money from your salary, you can choose to invest in the following options:
1. ULIP (Unit-Linked Insurance Plans)
Unit linked Insurance Plans (ULIPs) are life covers that offer dual benefits in the form of financial safeguard to your family in the unfortunate event of your demise, as well as investment to achieve your long-term financial goals. The policyholder pays two portions of the premium for a ULIP savings plan, and that contribution is invested in the fund of your choice after part of it is paid towards your life insurance plan. Depending on your objectives & risk tolerance, you, as a policyholder, can invest in debt, equity, or both.
2. Monthly income plans
A monthly income plan is an investment plan that provides you with a steady income stream every month. What you need to do is keep investing a fixed amount on a regular basis over a particular tenure/time period, such as 5 years, 10 years or 15 years. All this investment money keeps getting accumulated and grows over time, and once the plan matures, a monthly income starts getting deposited into your account for a predetermined period of time.
3. Mutual Funds
A mutual fund is a fund that pools in money from multiple investors and then invests that money into a variety of securities, such as bonds, stocks, etc. All such investments are managed by a financial expert, in this case a mutual fund manager, under an asset management company (AMC). As per the mutual fund's performance, the returns on your investment go up or down as per the securities in which your money was invested by the fund. There are various types of mutual funds, such as equity mutual funds, hybrid mutual funds, debt mutual funds, etc., in which you can either invest a lump sum or go through the SIP route.
4. Fixed Deposits
Bank FDs are among the most popular forms of low-risk investment in the short, medium, and even long term. The interest rate of FDs gets locked for the entire tenure, which thus minimizes the risk of losing your invested money. The returns from bank fixed deposits are generally low to moderate, depending on the choice of bank and tenure.
You can also choose to invest in RDs (recurring deposits) if you want to deposit smaller amounts every month instead of a lump sum FD.
5. Public Provident Fund
PPF (Public Provident Fund) is a popular long term investment option backed by the government. PPF provides guaranteed returns, though they are low to moderate, along with the benefit of minimal risk. PPF has a long lock-in period of 15 years, and the returns have been in the range of around 7% in recent years.
6. National Pension System (NPS)
The National Pension System (NPS) is a government-backed retirement savings scheme in which Indian citizens (including NRIs) are eligible to invest. It is a market-linked voluntary investment scheme that enables you to build a significant retirement corpus by investing in a pension account during your work-life years.
FAQs on How to save money from salary?
Q. How much money do you save from your salary?
You should ideally try to save at least 20% of your salary, or more, if possible. You can adopt the 50-30-20 rule for budgeting and saving. Also, make sure you not only save your money but also invest in FDs, stocks, mutual funds, ULIPs, etc., to create wealth.
Q. How do you save money on 30,000 salary?
Even if you have a lower salary such as Rs 30,000 per month, you should still try to save as much as possible, or at least 20% of your salary every month. The 50-30-20 rule can assists you allocate your income in the buckets of needs, wants, and savings.
Q. How can I save money every time I get paid?
The simple 50-30-20 rule can help you save money from your salary every month. All you need to do is stay disciplined regarding your expenditure and make sure you stick to the budget, and save 20% of your monthly income or more.
Q. How do you divide salary for savings?
The 50-30-20 rule can help you divide your salary into the three buckets of needs, wants, and savings. This way, you can consistently save at least 20% of your salary every month and invest that for wealth creation.
Q. How do you calculate salary savings?
Once you are aware of your salary every month, you should set aside a particular % of it for savings after spending on needs and wants, as per the 50-30-20 budget rule. This will ensure that you are saving at least 20% of your salary every month. Or else, divide your saved money by your salary and multiply that by 100 to get the % of your salary saved that month. For example, if you saved Rs 20,000 from your monthly salary of Rs 50,000, then your saving calculation is (Rs 20,000/Rs 50,000)*100, which comes out to be 40%. You can also use an online free savings calculator tool.
Related Articles
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- Who Should Consider Investing in Savings Plans?
- What are Monthly Income Schemes?
- Factors to Remember When You Select a Savings Plan
- How to Save Money Fast On A Low Income?
- How to Choose Best Savings Plan
- Impact of Inflation on Savings
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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 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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15. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.
@@Provided all due premiums have been paid and the policy is in force.
ARN - MC/08/24/15000
