How to Save Money from Salary?

by

Saving money from your salary is an essential aspect of financial planning. It helps you to achieve your financial goals and provides a sense of security in times of need. However, saving money can be challenging, especially if you are living in a country like India where the cost of living is high, and inflation is always on the rise. In this article, we will discuss various ways to save money from salary in India, potential saving amounts, and the return on investment.

  1. Budgeting: The first step towards saving money is budgeting. It is the process of creating a plan to manage your income and expenses. Start by listing down all your monthly income sources, including your salary, rental income, and any other sources of income. Next, list down your monthly expenses, including rent, groceries, utilities, transportation, and any other expenses. Once you have listed down your expenses, prioritize them and see where you can cut back on unnecessary expenses. By doing this, you will have a clear idea of how much money you can save every month.

Potential saving amount: By budgeting, you can save up to 20% of your monthly income.

  1. Create an emergency fund: An emergency fund is a savings account that you set up to cover unexpected expenses such as medical emergencies, car repairs, or job loss. This fund should have at least six months’ worth of living expenses. Start by saving a small amount every month and gradually increase it to build your emergency fund.

Potential saving amount: An emergency fund of six months’ worth of living expenses can be between INR 50,000 to INR 1,00,000.

  1. Save through Mutual Funds: Investing in mutual funds is an excellent way to save money and earn a return on investment. Mutual funds are professionally managed investment portfolios that invest in a diverse range of stocks, bonds, and other securities. They provide an excellent return on investment and are suitable for long-term financial planning.

Potential saving amount: By investing in mutual funds, you can save anywhere between 10% to 15% of your monthly income.

Return on investment: The average return on investment in mutual funds is around 12% per annum.

  1. Save through Fixed Deposits: Fixed deposits are a safe and secure way to save money. They are an investment option where you deposit a lump sum amount with a bank or financial institution for a fixed period. The bank pays you a fixed rate of interest on your deposit, and you get your principal amount back at the end of the deposit term.

Potential saving amount: By investing in fixed deposits, you can save up to 10% of your monthly income.

Return on investment: The return on investment in fixed deposits varies between 5% to 7% per annum, depending on the deposit term.

  1. Save through Recurring Deposits: Recurring deposits are similar to fixed deposits, but instead of depositing a lump sum amount, you deposit a fixed amount every month for a fixed period. The interest rate on recurring deposits is usually the same as that of fixed deposits.

Potential saving amount: By investing in recurring deposits, you can save up to 5% of your monthly income.

Return on investment: The return on investment in recurring deposits is similar to that of fixed deposits.

  1. Save through Public Provident Fund (PPF): Public Provident Fund (PPF) is a government-backed savings scheme that provides a guaranteed return on investment. You can open a PPF account at any authorized bank or post office. The minimum investment amount is INR 500, and the maximum is INR 1.5 lakhs per annum.

Potential saving amount: By investing in PPF, you can save up to 15% of your monthly income.

Return on investment: The return on investment in PPF is currently around 7.1% per annum, which is tax-free.

  1. Save through Employee Provident Fund (EPF): If you are a salaried employee in India, you can save money through the Employee Provident Fund (EPF). It is a government-backed savings scheme that is mandatory for employees working in organizations with more than 20 employees. The employer and employee contribute 12% of the employee’s basic salary towards the EPF. The interest rate on EPF is decided by the government every year.

Potential saving amount: By contributing towards the EPF, you can save up to 12% of your monthly salary.

Return on investment: The return on investment in EPF is currently 8.5% per annum, which is tax-free.

  1. Save through National Pension Scheme (NPS): The National Pension Scheme (NPS) is a voluntary retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is suitable for individuals who want to save money for their retirement. You can contribute to NPS until the age of 60, and you can withdraw up to 60% of the accumulated corpus tax-free.

Potential saving amount: By contributing towards NPS, you can save up to 10% of your monthly income.

Return on investment: The return on investment in NPS varies based on the investment option you choose, but it can be around 8% to 10% per annum.

  1. Save on Taxes through Section 80C: Section 80C of the Income Tax Act provides various tax-saving options to individuals. By investing in tax-saving instruments under Section 80C, you can save up to INR 1.5 lakhs per annum on your taxable income. The tax-saving options include EPF, PPF, NPS, tax-saving mutual funds, and life insurance premiums.

Potential saving amount: By investing in tax-saving instruments under Section 80C, you can save up to 10% of your monthly income.

Return on investment: The return on investment varies based on the investment option you choose.

Saving money from your salary is an essential aspect of financial planning. By following the above-mentioned ways, you can save a significant amount of money every month and achieve your financial goals. It is important to note that you should choose the savings option based on your financial goals, risk appetite, and investment horizon. Also, it is advisable to consult a financial advisor before investing in any financial instrument to ensure that your investment aligns with your financial goals.

Ways of saving money in India

Saving money is a crucial aspect of financial planning, and it is important to start early to achieve your financial goals. India is a country with a diverse culture and a variety of financial instruments to save money. Here are some ways to save money in India:

  1. Start with a budget: Creating a budget is the first step towards saving money. It helps you to understand your income and expenses and plan accordingly. Start by tracking your expenses for a few months to understand where your money is going. Once you have a clear understanding of your expenses, create a budget that allocates a fixed amount of money for each expense category, such as rent, utilities, groceries, entertainment, etc.
  2. Open a savings account: Opening a savings account is an easy and secure way to save money. You can choose from various types of savings accounts, such as a regular savings account, a zero balance savings account, or a high-interest savings account. Look for a savings account that offers a high-interest rate, low fees, and easy accessibility.
  3. Use a Fixed Deposit (FD): A fixed deposit (FD) is a secure investment option where you can deposit a fixed amount of money for a fixed tenure. The interest rate on FDs is higher than that of a savings account, and the risk involved is low. The tenure for an FD can range from 7 days to 10 years, and you can choose a tenure that suits your financial goals.
  4. Invest in Mutual Funds: Mutual funds are an excellent investment option for those who want to grow their money in the long term. Mutual funds are managed by professional fund managers who invest your money in various stocks, bonds, and other securities. You can choose from different types of mutual funds, such as equity funds, debt funds, hybrid funds, and more. It is advisable to invest in mutual funds for the long term to get higher returns.
  5. Use a Recurring Deposit (RD): A recurring deposit (RD) is a type of fixed deposit where you can deposit a fixed amount of money every month for a fixed tenure. The interest rate on RDs is similar to that of FDs, and the risk involved is low. RDs are a good option for those who want to save a fixed amount of money every month.
  6. Invest in Gold: Investing in gold is a traditional way of saving money in India. Gold has been a popular investment option for centuries and is considered a safe investment option. You can invest in gold in various forms, such as physical gold, gold ETFs, gold mutual funds, or sovereign gold bonds.
  7. Save through Employee Provident Fund (EPF): If you are a salaried employee in India, you can save money through the Employee Provident Fund (EPF). The employer and employee contribute 12% of the employee’s basic salary towards the EPF. The interest rate on EPF is decided by the government every year.
  8. Save through National Pension Scheme (NPS): The National Pension Scheme (NPS) is a voluntary retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is suitable for individuals who want to save money for their retirement. You can contribute to NPS until the age of 60, and you can withdraw up to 60% of the accumulated corpus tax-free.
  9. Use Cashback and Reward Programs: Many banks and credit card companies offer cashback and reward programs for using their services. You can earn cashback or reward points for every transaction you make, and you can redeem them for various products or services. It is a good way to save money while spending.

Benefits of saving money from salary in India

Saving money from your salary can offer numerous benefits, both in the short-term and long-term. Here are some of the benefits of saving money from salary in India:

  1. Achieve financial goals: One of the primary benefits of saving money is that it helps you achieve your financial goals. Whether you are saving for a down payment on a house, buying a car, or creating an emergency fund, saving money regularly can help you achieve your goals faster.
  2. Emergency fund: Saving money from your salary can help you build an emergency fund, which can provide financial security in case of unexpected expenses such as medical emergencies, job loss, or car repairs.
  3. Retirement planning: Saving money for retirement is crucial, and it can help you ensure that you have enough money to live comfortably after you retire. By saving money regularly, you can build a retirement corpus that can generate income after you stop working.
  4. Peace of mind: When you have money saved, you have the peace of mind that comes with financial security. You do not have to worry about living paycheck to paycheck or being caught off guard by unexpected expenses.
  5. Financial freedom: Saving money can help you achieve financial freedom, which means having enough money to live the life you want. By having financial freedom, you can choose to work less, travel more, or pursue your hobbies without worrying about finances.
  6. Avoid debt: By saving money, you can avoid taking on unnecessary debt. If you have an emergency fund, you can use that money to cover unexpected expenses instead of relying on credit cards or loans.
  7. Better credit score: Saving money can help improve your credit score. If you have money saved, you are less likely to miss payments or default on loans, which can negatively impact your credit score.
  8. Higher returns: By investing the money you save, you can earn higher returns than what you would get by keeping the money in a savings account. Investments such as mutual funds, stocks, and fixed deposits offer higher returns over the long-term.

In conclusion, saving money from your salary is an important aspect of financial planning. It can provide financial security, help you achieve your financial goals, and offer peace of mind. By saving regularly and investing wisely, you can build a strong financial foundation for the future.

Best money saving strategy in India

There is no one-size-fits-all strategy for saving money in India, as the best strategy will depend on individual financial goals, income, and expenses. However, there are some general tips and strategies that can help anyone save money:

  1. Create a budget: The first step to saving money is to create a budget. This involves tracking your income and expenses to understand where your money is going each month. Once you have a clear picture of your finances, you can identify areas where you can cut back on expenses and save more money.
  2. Pay yourself first: Instead of waiting to save money at the end of the month, make it a priority to save a portion of your income as soon as you receive it. This can be done by setting up an automatic transfer to a savings account or investment account.
  3. Use cashback and rewards programs: Many banks and credit card companies offer cashback and rewards programs for using their services. By taking advantage of these programs, you can earn money back on your purchases and save more money in the long run.
  4. Reduce unnecessary expenses: Identify expenses that are not necessary, such as subscription services or dining out, and reduce them or eliminate them altogether. This can free up more money for saving.
  5. Invest wisely: Investing your savings can help you earn higher returns over the long-term. However, it is important to invest wisely and diversify your portfolio to minimize risk.
  6. Avoid debt: Avoid taking on unnecessary debt, such as credit card debt, as it can be difficult to pay off and can accumulate quickly. Instead, focus on paying off any existing debt and avoid taking on new debt.
  7. Build an emergency fund: Having an emergency fund can provide financial security in case of unexpected expenses. Aim to save at least six months’ worth of expenses in an easily accessible savings account.
  8. Stay motivated: Saving money can be challenging, but it is important to stay motivated and focused on your financial goals. Celebrate small wins and track your progress to stay on track.

In conclusion, the best strategy for saving money in India is to create a budget, pay yourself first, reduce unnecessary expenses, invest wisely, avoid debt, build an emergency fund, and stay motivated. By following these tips and strategies, anyone can save more money and achieve their financial goals.

Conclusion

In conclusion, saving money from salary in India is an essential part of financial planning. There are several ways to save money, such as creating a budget, reducing unnecessary expenses, investing wisely, and building an emergency fund. By saving regularly and investing wisely, individuals can achieve their financial goals and attain financial security and freedom.

Additionally, there are numerous benefits to saving money, such as peace of mind, avoiding debt, and achieving financial goals. Ultimately, the key to saving money is to stay motivated, disciplined, and focused on long-term financial goals. By following these tips and strategies, anyone can save money and build a strong financial foundation for the future.

Leave a Reply