Many people save a portion of their salary for a rainy day. They create an emergency fund to take care of any unforeseen expenses that may come their way. If you’re looking to save and setup a savings plan for such a day or simply saving for the future, you should start by knowing how to save money from your salary:
Start by budgeting your expenses
In order to save money, you need to first look at what you’re spending your money on and where you can cut expenses to save. Luckily, in this technological era, you need not sit with manual calculations and excel sheets. There are many budget apps such as mTrakr and Mvelopes that do the budgeting for you. You simply need to enter your expenses, and the app will help you categorise it and even make suggestions on where you can save money.
Set aside a fixed portion of your salary in another account
Now that you know how much you’re spending on different aspects of your life such as rent, groceries, transport, shopping, entertainment, etc. make a salary breakup structure. That is to separate and allocate portions of your salary to different types of expenses, and then a fixed excess should be transferred to another account, so you’re not tempted to spend it.
Choose auto-debit facility to transfer money into another account
Make the process of saving more convenient for you by automating the whole process. Set up an auto-debit facility on your account where the fixed portion of your salary gets automatically transferred into your other account on a certain date every month. This is also a way where you won’t get tempted to spend the money on something else.
Have a savings goal in mind
Once you start saving, determine your goal for your savings. For instance, instead of just letting your money sit in a savings account and earn up to 4% interest per year, consider diversifying your money into different investment instruments that can earn you much higher interest rates. For instance, RDs and FDs can earn you around 7% p.a. interest or may be more, mutual funds can earn you better interest too.
Increase your contribution according to your salary hike
Most companies in India offer a salary hike to employees every financial year. As and when you get this hike, make sure to increase your contribution toward your savings proportionately. You can also include any extra earnings from bonuses and freelance work. This will help you save more within a shorter period.
Ideally you should setup an emergency fund of at least 6 months’ salary. This will help cover unfortunate situations such as a sudden loss of job, medical emergencies, etc. Or this could even be the start of your retirement fund.