Smart money moves: Tips for saving from your paycheck

close up grandmother hand press on calculator for counting about monthly expense or planning money management after retired concept

Every penny saved is equal to every penny earned”, is a famous quote from Warren Buffet, who is the greatest investor of all time. Living a life, from paycheck to paycheck can be daunting, hence this is where saving comes in. Saving money from your paycheck is a financial habit that can pave the way towards a secure and comfortable future.

Whether you’re planning for retirement, saving for a major purchase, or building an emergency fund, determining how much to save is a difficult task. But worry not; we’re here to help you navigate this financial dilemma with five essential tips to guide you in determining how much to save from your salary:

Create a Budget: Before you can decide how much to save, you need to know where your money is going. Outline your income and expenses. This will give you a clear picture of your financial situation and help you identify areas where you can cut back to save more.

Setting clear and specific financial goals is essential. Ask yourself what you’re saving for: is it a dream vacation, a down payment on a house, an emergency fund, or your retirement? Once you’ve identified your goals, you can invest accordingly.

For example, if you’re saving for a vacation that costs Rs 2 lakh. You can break it down into smaller, manageable monthly savings targets. Having a concrete target can motivate you to invest consistently.

The 50/30/20 Rule: If you’re unsure where to start, the 50/30/20 rule is an excellent framework. Here’s how it works:

  • 50% for Needs: Allocate 50% of your income to cover essential needs. This includes expenses like rent or mortgage, utilities, groceries, and transportation. By ensuring half of your income goes toward necessities, you’ll maintain financial stability.
  • 30% for Wants: This 30% is for your discretionary spending. It covers things like dining out, entertainment, and hobbies. Allocating a portion of your paycheck for fun and leisure ensures you don’t feel deprived and can enjoy life in the present.
  • 20% for Savings: The remaining 20% should be directed toward your savings. This is where you prioritize your financial future. You can invest this portion in various accounts, such as an emergency fund, retirement accounts, or other investments.

Automate your savings and investments

Life is busy, and it’s easy to forget to save after covering all your bills and expenses. To overcome this, set up automatic transfers to your savings accounts. Paying yourself first ensures that a portion of your paycheck is saved before you have a chance to spend it.

Set up a direct deposit with your bank for a hassle-free savings strategy. This means a portion of your income is automatically transferred to your chosen account, be it a dedicated savings account, a retirement fund, or an investment portfolio. Alternatively, you can opt for a Systematic Investment Plan (SIP), where a predetermined amount is automatically debited from your bank account and invested in mutual funds at regular intervals. This automated approach ensures consistent savings, reducing the temptation to spend before saving. It’s a convenient way to build your financial future without the hassle of manual transfers.

Planning your taxes: As a salaried employee, you often end up paying substantial taxes. However, by planning your investments, you can significantly lower your tax burden. Consult your Chartered Accountant during Income Tax return filing to discover various tax-saving investment opportunities.

Maximize your tax savings by investing wisely. Start your year right by investing in ELSS fund or an equity-linked savings scheme which  gives you the twin benefits of tax deductions and wealth creation. ELSS funds have a three- year lock in period which is the lockets when compared to the PPF, NSC and EPF, all of which requires a minimum of five years lock-in period. They are the only kind of mutual funds eligible for tax deductions under the provisions of Section 80C of the Income Tax Act, 1961. You can claim a tax rebate of up to Rs 1,50,000 and save up to Rs 46,800 a year in taxes by investing in ELSS mutual funds. You could also consider investing in PPF (Public Provident Fund) scheme, a government-backed savings and investment tool in India. By investing in PPF, you can claim up to Rs 1.5 lakh of tax deduction from your income, reducing your tax liability under Section 80C.

The PPF scheme not only helps you create a secure retirement corpus but also aids in achieving your financial goals. It’s a smart way to save on taxes while building a brighter financial future. So, start the year by investing in PPF and watch your savings grow while reducing your tax outflow.

Periodically review and adjust your savings plan: Your financial earnings aren’t static, so your saving plan also needs a timely update. Periodically reviewing and adjusting your savings plan is essential to ensure it aligns with your current circumstances and goals.

Life changes, and so do your income, expenses, and financial priorities. A job promotion, a salary increase, or changes in your family situation can all impact your ability to save. Make it a habit to review your budget and savings plan at least once a year. This way, you can reallocate your savings based on your changing needs and resources.

Saving doesn’t have to be a burden; it can be a rewarding and empowering habit that allows you to take control of your financial destiny. So, start today and watch your savings grow, knowing that you’re building a brighter financial future for yourself and your loved ones.

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