How to save money in India? As a middle-class Indian, all of us have the same questions, dilemmas, and roadblocks.
We are the ones who form a major part of the Indian population.Middle-class people who are not poor, as in we have ample amount of money for the basics; however, we aspire for the life of luxury.
My father always says if you want to increase your earning, increase the expenditure. My mother is the opposite; she would save & hide money in all possible secret places-right from behind the photographs to lockers to money boxes(gullak). She truly believed in “a penny saved is a penny earned” and would save from her household expenses. She was & is the true Finance Minister of our home. Whenever we needed some extra cash, a little out of the way treat, a vacation, an expensive dress, she would come to our rescue.
But I believed that while always trying to save money for the future, she actually did not enjoy her present. While my father always spent whenever and on whatever he wanted to.
God truly matched their money attitude & so they sailed quite successfully while giving us all the essentials, a little bit of luxury & savings for retirement.
But in real life, it isn’t easy to find such a match. It truly is a match made in heaven & from a savings point of view too; this mixed approach works best.
Too much focus on saving can actually take away all the fun. What is the point of earning money when one can not enjoy it?
Similarly, all-expense & no saving will make us a poor fellow. A balance needs to be struck between the two approaches.
I have taken cues from my parents & have followed the High Expense- High Savings Road & am delighted to share all the tips & tricks.
Let us be very clear, saving money is a life skill & hence it will always be more important than spending. With this, I did not mean to say that we do not pay our essentials, or live below our income standards or invest all the energy in saving.
What I meant was let’s optimise our savings whilst enjoying the fruits of our hard-earned money.
Best Ways To Save Money In India
Let us start with more conservative ways to save money in India, & then further; we would touch upon some unique & fun ways of savings-
What percentage of salary/income should be saved in India-
To start saving money, one has to be clear about how much money should be saved every month. There are specific rules that people follow while budgeting, one of them is the 28 36 rule.
So what is the 28 36 rule?
According to the 28 36 rule, the maximum that we should spend on our household expenses is 28% of our monthly income & we should not have a debt amount of more than 36% of the monthly income.
For example if your salary is 1,00,000 – then the household expense should not be more than 28000 Rs. & EMIs on loans should not exceed more than 36000 Rs every month. Rest 36000 Rs, should be used for investments & savings.
Another rule of savings is the 50-30-20 rule, wherein it is advised to save at least 20% of your income each month.
As per this rule, you can spend 50% of your income on essentials, save 20%, and leave 30% of your income for discretionary purchases.
So with an income of Rs. 1 lakh, one can spend 50 thousand on essentials,30 thousand on discretionary/luxury purchases & save 20 thousand.
You can choose any rule of budgeting depending upon your life goals & present standing.
1.Invest in Different Investment Products-
As our elders have suggested, never put all your eggs in one basket; it fits best with money management. We must invest in different investment instruments, right from high-risk investments like shares & stocks to conservative instruments like Fixed Deposits.
Diversify your investments/savings by investing in Fixed Deposits, PPF, Bonds, ELSS, Mutual Funds and Equity Market investment.
For all the above traditional investment options, you must open an account with the bank, verify your KYC & then only you can start investing in Mutual Funds & FDs.
For Equity Market Investment, you will have to open a Demat account & trading account.
These traditional options would definitely help answer the most common questions.
How to save money for the future?
How to save money for kids?
How to save money for travel?
How to save money for a home?
How to save money for Car?
How to save money for I phone/gadgets?
For the long term goal of saving money for the future & kids, you should invest in long term instruments such as shares, mutual funds, gold bonds.
For life goals such as House & Car, SIP is the best.
For short term goals, I have some interesting hacks coming up soon.
2.Invest in Sweep in account-
Sweep in accounts are flexible fixed deposits accounts that are connected with our savings bank account.
The balance in Sweep in account can be withdrawn along with our savings account balance, but they earn an extra rate of Interest. In this particular type of fixed deposit, the excess Money lying in our savings account over a specified level gets invested automatically into a fixed deposit with a higher interest rate.
So, rather than keeping money in a regular savings bank account that gives you 3.5% interest, you can use a sweep-in-account to earn additional money.
Overall, you get to earn 2% to 2.5% higher Interest on your sweep-in-accounts.
3.Saving Money by saving your Income Tax
Saving money through income tax has dual benefits. We not only save tax upfront, but we also save through investments.
There are specific investment options like ELSS, PPF, NPS, NSC, LIC premiums and five years Tax saver Fixed Deposit with banks & post offices. If we invest upto 1,50,000 in these instruments, our taxable income gets reduced by the same amount.
For example, our taxable income is 6 lakh, but we have invested 1 lakh 50 thousand in one or multiple of the above instruments.
Now the tax would be levied on 6lakh-1.5 lakh, that is 4lakhs 50 thousand only. So instead of paying 10% of 6 lakhs, that is 6000, we will be paying NIL Income Tax. Straight away savings of 6 thousand apart from the long term interest on 1 lakh 50 thousand invested in tax saving instruments.
Check tax slab below-
Read more about Income Tax guidelines here.
4.Use Interest-free EMI option of Credit Card-
Almost all credit cards come with an interest-free EMI feature. So next time when you buy your favourite gadget, check credit card offers going along with it & instead of taking a costly consumer goods loan, use your credit card.
You will save on interest amount and earn credit card points that can be used for future purchases & gifts.
The reward points, vouchers, and coupons you collected on your credit cards can be used to buy movie tickets instead of paying in cash or using a credit card. This way, you can save Rs. 150 to Rs. Three hundred depending on the movie ticket price.
Tip- You can easily enhance the credit time for 45 days instead of 30 on the credit card if you make the purchase just after the bill generation.
5.Use Credit Card Smartly
The above tip comes with a word of caution, always check your monthly disposable income and liabilities before making any such purchase. Remember to use the 28-36 rule or 50-30-20 rule. While planning for a large expense, you must ensure that you don’t have a huge amount of debt eating away your savings. Do not overuse your credit card, and always pay your credit card bills in full and on time to avoid paying recurring interest charges.
6.Buy Health Insurance
Most salaried people get health insurance through their employers & most self-employed people consider buying it as an expense.
However, diseases and accidents come without an invitation. You may save a couple of lakh of rupees on hospital expenses in case of an emergency.
In many cases, medical insurance provided by the employer is not sufficient, or it does not cover parents. For self-employed people situation is more gloomy if they had to face any unfortunate accident or a critical illness.
So, though you need to pay an insurance premium every year, for me, it is future savings on medical emergencies. On top of that, it also attracts income tax rebate under Section upto Rs.50000.
|Scenario||Premium paid (Rs)||Deduction under 80D (Rs)|
|Self, family, children||Parents|
|Individual and parents below 60 years||25,000||25,000||50,000|
|Individual and family below 60 years but parents above 60 years||25,000||50,000||75,000|
|Both individual, family and parents above 60 years||50,000||50,000||1,00,000|
|Members of HUF||25,000||25,000||25,000|
7.Invest in Traditional Life Insurance
Traditional Life Insurance provides a higher amount of sum insured with the least amount of premium when compared to the Unit Linked Insurance Plans or endowment plans for the same policy period.
On average, your endowment policy gives you a 3% – 4% return.
If you’re stuck in an expensive endowment policy, then you can switch to a cheaper term insurance policy.
When you switch, you save money by paying a lesser premium amount, or you can invest the premium difference (premium of endowment plan – the premium of term insurance) in mutual funds and stocks that will yield you higher returns.
8.Utilise Credit card points To Book Air Tickets
If you are a frequent flier or heavy credit card user, check for reward points added to the card.
These points can be easily converted into air miles & can be used for buying air tickets. Always check the reward point scheme before applying & using the card.
Some cards have more reward points than others; it always makes sense to do a little research before applying for the cards.
The air miles collected over time can be redeemed to book free air tickets instead of paying Money.
9.Use Visa/Mastercard sponsored Lounge Cards during Air Travel
Visa & Mastercard co-branded Credit & Debit Cards give their members free access to premium airport lounges worldwide.
You can eat, drink & relax while waiting for your flight.
So next time you go on a vacation, make sure to use credit card points to buy air tickets & use Airport Lounge for snacking & rest.
10.Utilise Credit card points To Shop
Oh! I guess days of exploitation by Credit Card companies are over & we are all out to take our revenge.
We can also use our accumulated points to buy cash vouchers for shopping at almost all domestic & international outlets, depending upon the kind of credit card you are using.
So I will finally conclude my experiences with a last piece of advice,please remember-“Planning is the key”.
Budgeting is the first step pf saving money. When you know how much you have to save & how much you have to spend you make better decisions than doing everything on impulse.
2. Automate Your Savings
Once you have decided on the amount of money to be saved every month, don’t leave it for manual updations. Automate all your investments, right from SIP, MF, RD etc.
3. Be Debt Free
Try not to have a debt unless it is a necessity. Remember 28-36 rule & do not exceed your EMIs beyond 36% of your earnings.
Before concluding the article, I would answer some Frequently Asked Questions during my research. I will keep updating them in future so that it adds value to the reader everytime they go through it.
What is the 30 day rule?
30 day rule is another trick people use to delay the expense.So if you want to buy something expensive wait for 30 days & see if you still want to buy or not?In most of the cases people would not go back to that product & will save money by not buying something that was not a requirement but an impulse.
How can I save money in less salary?
You cane save money in any amount of salary but you need two tools-Intention to save & Plan your savings.
Identify your long term & short term goal.
Budget your monthly expenses & stick to it.
Start with small amount of money, you can start saving with as low as 500 in SIP & RD.Just develop the habit.Once you have a little corpus invest in shares, securities, mutual funds.
How to save money for travel?
Travelling needs detailed planning & research. To start with decide on destination , mode of travel & accomodation & then take out the amount of money needed for the trip.
Divide the money into number of months you have & start investing in a liquid instrument like Recurring Deposit or Systematic Investment Plan.
Make your reservations in advance, use credit card to pay for accomodation & utilise air miles for air tickets.