In today’s world, managing finances and saving money can feel like a daunting task, especially with rising living costs and aspirational spending habits. Understanding how to create an effective savings strategy is essential for achieving personal financial goals.
Common Savings Rules: Are They Relevant?
One of the most well-known guidelines is the 50/20/30 rule, which suggests budgeting 50% of your income for necessities, 20% for savings, and 30% for discretionary spending. While this method is straightforward, it often falls short for many individuals today due to fluctuating expenses attributed to inflation, lifestyle upgrades, and the burden of loans. According to entrepreneur and SEBI registered investment advisor Gaurav Goyal, achieving the recommended 20% savings from one’s salary is increasingly challenging.
The Reality of Income and Expenses
For instance, consider an individual earning Rs 50,000 per month. After covering essential expenses like rent, EMIs, groceries, and bills, only Rs 10,000 remains for saving. At first glance, saving this amount seems effortless, but what about the desire for high-ticket items like the latest iPhone priced at Rs 1.20 lakh?
Beware of Temptations
The allure of purchasing such items through EMI options may be strong; however, this can jeopardize long-term financial health. It’s crucial to develop a well-considered savings plan that prioritizes long-term objectives over short-term desires.
Key Strategies for Smart Saving
Establishing Priorities
Harsh Gehlot, co-founder and CEO of FinAge, emphasizes the importance of the principle “save first, spend later.” While it is natural to have wishes for luxury items, prudent financial planning encourages saving for these purchases before making them. Consider setting aside Rs 5,000 per month toward that iPhone, while simultaneously investing in your long-term financial goals.
Balancing Needs and Desires
Should purchasing an iPhone be a priority for you, it may require cutting back on other discretionary activities, such as dining out or vacationing. “This does not mean abandoning your hobbies,” Goyal notes. Rather, it entails thoughtful planning. Essentials like health, education, and long-term security should come first, with separate allocations for luxury purchases. For example, if you earn Rs 50,000, you might need to reduce expenses related to holidays or non-essential online shopping for the next 12-18 months to afford that iPhone.
Putting It All Together: A Savings Plan
| Category | Allocation (%) | Allocation (Rs) |
|---|---|---|
| Necessities (e.g., rent, bills) | 50% | 25,000 |
| Savings | 20% | 10,000 |
| Discretionary Spending | 30% | 15,000 |
| Target Savings for iPhone (monthly) | 10% | 5,000 |
Conclusion
Although following traditional savings rules may be challenging, customizing a financial strategy that aligns with your income, expenses, and goals is vital. By prioritizing savings, maintaining a balance between essential needs and lifestyle choices, and planning ahead, you can achieve both financial security and the fulfillment of personal aspirations.
