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What percentage of my salary should I keep for savings?

There are many myths and facts related to the percentage of salary that should be kept for savings by any individual.
  1. Some people say that Income - Expenditure = Savings. This is A THEORY but I don’t agree with it at all. The general propensity of any individual is to consume and in a country like India which is consumption oriented and with rising disposable incomes, more people consume and consume and are left with nothing to save. THIS IS A FACT.
  2. Giving a % like 20% or 25% or 30% - This is A THEORY too, I don’t agree with it also because, If I am living in an own house, with zero debt/liabilities, steady rising income, average expenses, then why should I restrict myself to saving less and forcing myself to consume more, only because the % of savings has been met? HOW IS THIS GOOD?
  3. This is how I did it.



I believe in something called OPPORTUNITY and you have to create it.
  • Think of all the money that a person can normally get from various sources - starting with salary, bonus/variable pay, tax deductions, rental incomes, interest from FD/RD, dividend income, mutual funds etc. You might be getting money from at least half of those sources. Add up the total amount and that is the MONEY ON THE TABLE - that represents your total Income or in other terms an OPPORTUNITY. Opportunity for you to save, grow it and make yourself wealthier - on your own and legally (the most interesting/satisfying part!!!)
  • Imagine, if given a chance, how much would you want to save out of it. That is where the concept of INCOME - SAVINGS comes in. Obviously you cannot save everything unless someone else/parents/guardians are providing for you and taking care of all your expenses.
  • Now set a target, something like, you will save 75% of your total income. Remove that money and put it in an FD for 30 days. With the balance 25% money, pay for all your expenses. You might not be able to pay for all of them. But still, write down how much you paid for each expense - important like rent, electricity, travel etc as well as splurges like parties, eating out daily, restaurant food instead of small service counters etc.
  • By the end of the month, two things would have happened
    • You will notice that you have not paid some bills
    • You will also note that you have splurged your money on some unnecessary things which could have been avoided and the 25% could have been better managed
  • Now, multiply the money splurged on unnecessary expenses by 12, so that you will know how much money you are wasting in a year. Now, multiply it again by 10 and you will know that, in the time you could have got 5 years of work experience, grow professionally, get married and probably start family with kids,HOW MUCH MONEY YOU CAN POSSIBLY WASTE. (It is just fast forwarding yourself into the future, also I asked you to multiply by 10 the second time since you and your girl friend/wife together will double the expenses and I have not even included the kids spending also... they take up a lot of money)
  • Now, go back again to the earlier step - end of the month scenario, pay all the important bills and repeat the process again, with maybe 30% of your total income for expenses.
  • After you have done that process for 3 - 6 months, two things will happen.
    • You have now established a stable expense scenario, with your brain (consciously) accepting the fact that unnecessary expenses CAN be eliminated and you start realizing the VALUE of each expense
    • Also, you will now realize that, the money saved is considerable (I have not even started to compound that money yet) and you will crave for ways and means to accumulate more and that is when you are ready to throw yourself into serious investing.
  • When you have come to that point, your expense system is lean and mean and most efficient than average households and that is when you go and attack the investment scenario.
Hope, I was able to bring you clarity on how, what, when, where and why to save and then, start investing.
To open an account and start investing, visit Zerodha.

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