How Much Could You Save?
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Series: Beginning Investing (4th post)
Section: Setting Your Goals
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Now that you know how much you spend sit down with your family and work out where you could reduce your expenses. There are usually some useless expenses that you can cut without feeling the difference.
A good place to look for saves is in utility bills like electricity and telephone. It might also be possible to reduce in areas like credit card late payments and interest expenses (just pay before the due date, take an instalment loan scheme on the card or transfer your balances to another) and some entertainment expenses (no, I'm not asking you to sacrifice it all - maybe you could just reduce it by, say 10%?)
Once you have 'cut out the fat', you are now in a position to determine how much you could save every month - your monthly income less your monthly spend. This should, at the very least, be a positive figure otherwise you are definitely living beyond your means. Ideally it should be around perhaps 20% of your income or better. I think that's the average savings rate in India.
Your monthly savings are pretty much all you have to count on when you set your financial goals so the larger the figure you can mange, the better!
Next Post on Beginning Investing: What Are Your Goals?
3 comments:
Savings depend on ones income as much as it depends on discipline. With increasing income one should be able to save a higher percentage of pot tax salary provided the expenses are curtailed. Whenever one is spending on a non-utility stuff it basically becomes a decision between 'need' and 'want'. Distinguishing between these words is important for ones financial security. Much more important is that we start saving as soon as possible and let the power of compounding work in our favour. Earn more, save more, invest wisely and have a secure financial future.
Agree completely. As your income goes up, it is important to try and ensure your expenses rise slower than your income so you have a bigger and bigger amount to save.
And, yes, the way to keep expenses in check is to evaluate your 'wants' carefully and postpone purchases that divert you from meeting your financial goals. Live life well, by all means, but keep an eye out to ensure you can keep on living the good life in future as well!
And long term savings should be at least 10 to 15 % of the take home pay - when you look at it as a percentage, then it takes care of the increase in income - more the income, more you save
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