How to save money from salary? Step-by-step tutorial

Saving money from salary is both a dream and a puzzle for many people. They are often convinced that they have to increase their income in order to start saving.

However, that is a mistake. The advantage of getting into good habits of saving from the start is that your savings level will increase with time. 

If you still don’t know how to save money from salary, then it’s time to use the tips below

Step 1: Set goals

Setting the goal of saving just to have savings on your account is not motivating. On the other hand, saving so that you can accomplish something is much more motivating. 

To succeed in saving from your salary, you need a specific goal to achieve. But what are goals? Goals are nothing but the desires of life.

Your top 3 desires of life are your goals. Interesting? I picked up this concept from Chris Croft’s linkedin learning course

That way, you will be more motivated to reach them.

goal setting, goal, dart

MOST of the financial beginners don't even know that defining the FINANCIAL GOALS is the crucial step.

Take a piece of Paper and write down your Top 3 Financial desires

- I need a dream car
- I need to purchase a land in my hometown
- I need to build a dream home

These are my financial goals for 2021.

What is yours?

Step 2: Know your take home salary.

This is one of the questions that arise when people decide to start saving. 

First, it is necessary to know how much you earn. Doing this survey is essential for you to have an accurate idea of how much you are spending per month. Having this notion, you can know what expenses can be cut or decreased.

think about, salaried worker, businessman

The MOST common mistake is NOT knowing your monthly Take Home salary.

Do you feel that you are earning PEANUTS?

Then, time has come to understand the concept of TAKE HOME SALARY.

Companies may have tricked you by making your CTC look big, and you may have eventually wondered why am I not saving anything?

If this happens, you may have to WORK TWICE AS HARD AS YOU WORK NOW to achieve your financial goals.

Either WORK HARD to earn more or BARGAIN for a better salary that you deserve for. Which one do you think is smarter?

Leaving it to you!!!

Many people appeal to apps that do these accounts automatically. 

But, at this first moment, it is important that you study your earnings. Therefore, it is important to calculate the gross salary (full amount received) and the take home salary (what is left after having tax deductions).

The most common mistake is NOT knowing your monthly income

That way, you end up spending more than you have, and it becomes more difficult to know how to save.

Step 3: Study your expenses.

In order to understand how to save money from your salary, you need a precise action plan. 

This is through creating a budget which will point on your expenses, and also help you determine your saving capacity. Your budget should include the following components:

save money from salary

ANALYZE your spending for about THREE to SIX MONTHS..

Use a software like TOSHL FINANCE or a simple EXCEL Sheet.

- What are your MANDATORY Expenses?
- What are your VARIABLE Expenses?
- What are your EXCEPTIONAL Expenses?

STEP 1: Prepare an action plan to WEED out all your unnecessary expenses..
STEP 2: What expenses are controllable? Can you save by limiting these expenses?

Prepare an action plan.

I. MANDATORY EXPENSES

To start, you will focus on the compulsory expenses (rent, insurance, etc.), which are taken from your account each month. 

List these expenses and indicate the corresponding amount. Be specific about the amounts, check your invoices rather than writing down approximate information.

“I am using  the software Toshl Finance – I enter my daily expenses every day using the mobile app, it syncs with desktop app, and generates a monthly expense chart where I could easily spot out over spending”

II. VARIABLE EXPENSES

Analyze 3 months of your spending trend using the app, the fixed expenses and the variable expenses can be easily defined.

After the fixed expenses, it is important to determine the amount of variable expenses such as food, transportation, and children’s expenses and gas costs. List all of these expenses.

You shall then use the excel sheet, log your complete expenses. And have a look of how it goes!!!

III. EXCEPTIONAL EXPENSES

Life is made up of unexpected events that will directly impact your budget. An essential household appliance that breaks down, the car that needs to be repaired, etc. 

If you have faced extraordinary expenses in the past months or plan repairs in the coming months, mention this in your budget.

By distributing your salary on these lists, giving priorities according to the arrangement above, you will discover holes that have been wasting your money that could have been a surplus to save. Working with this strategy for several months, you will inevitably reach a better financial position.

“I am using the software Toshl Finance – I enter my daily expenses every day using the mobile app, it syncs with desktop app, and generates a monthly expense chart where I could easily spot out my over spending”

Prabha Balakrishnan

Step 4: Limit expenses

Establishing a budget does not mean giving up all the pleasures and living in deprivation. 
 
On the other hand, to succeed in reaching your objectives, it is necessary to give up certain expenses such as going to the hairdresser, buying clothes, traveling on holiday, etc. 
grocery bag, groceries, beer

DON'T SPEND EVERY PENNY YOU MAKE..

Overspending will definitely break you, no matter how high your income is.

If you don't think before buying, you will drain your money and limit your ability to save from salary.

To succeed in reaching your Financial goals, it is necessary to GIVE UP certain EXPENSES such as going to the hairdresser, buying clothes, traveling on holiday, etc.

Also, when going to the market, write all the things you want and stick to the list you wrote down so that you don't buy unnecessary or obligatory things

Such kind of expenses sometimes seem insignificant, but can quickly weigh heavy in a budget.
 
As you limit your expenses, you need to think carefully about what you intend to buy. Is it important, necessary, or irreplaceable? Will you use it permanently, continuously, or you just want to own it?
 
If you don’t think before buying, you will drain your money and limit your ability to save from salary. Also, when going to the market, write all the things you want and stick to the list you wrote down so that you don’t buy unnecessary or obligatory things.

Step 5: Set a saving target

You may want to save more, but when you do the math, you will find that it is not achievable. Right now, you need two essential elements: patience and calm. 
 
Start saving small and see how much of your spending can be cut.
 
data, analysis, accountant
Thus, each month you save a small percentage of what you earn, you will gradually be able to understand the value of each expense and be able to have self-control. The most important thing is to develop a wealth accumulation mindset. For this, you need to understand that you do not acquire wealth overnight, you need to develop this idea little by little.
 
However, it is common for people not to know the ideal amount should be saved each month. Among the best financial rules that you can choose are:
 
I. 10% SAVING RULE
 

Inspired from the book ‘The Richest man from Babylon‘.

The “10% savings” rule is simply a starting point for those looking on how to save money from salary. Here, you take 10% of what you earn and save it for your retirement. 

This rule is ideal for young people who have secured a well-paying job. Although 10% may seem little to start, the important thing is that you get into the habit of saving.

Remember that this 10% figure refers to your monthly net salary. 

Therefore, if you receive $ 4,000 per month, after paying your bills and spending on leisure, you should save $400. However, this is not a rule, but a recommendation. 

This percentage saved per month can vary according to your needs and goals

Don't know where to start?

Start with 10% saving rule. Here, you take 10% of what you earn and save it for your retirement. This rule is ideal for young people who have secured a well-paying job. Although 10% may seem little to start, the important thing is that you get into the habit of saving.

II. 50-30-20 RULE
 
Economists and financial educators advise adhering to the 50-30-20 rule. The idea is to distribute better what you receive, and from that, create priorities within what you should pay. For this, your salary is divided into three parts:
 
• 50% for essential expenses
 
• 30% for non-essential expenses
 
• 20% for saving
 
For example, if you receive $4000 per month, you need to use $2000 for essential expenses, $1200 for non-essential expenses, and save $800. However, note that the financial commitments of someone who is married and has children are different from those who are single and live alone. If that is the case with you, you can choose the model 70-20-10, if you have more essential expenses.
 
Note that each moment of life will call for a new adaptation. The important thing is to create and maintain the habit of saving, even if you cannot reach exactly the suggested percentage. You can adjust this over time. It is best to separate this amount at the beginning of the month to avoid spending everything until the end.
 
Lastly, it is recommended that you schedule an automatic transfer so that one or two days after collecting your salary, the corresponding % will be allocated to your savings account. This way, you will avoid spending on what you plan to save.
percentage rule to save from salary

MOST FAMOUS 50-30-20 rule!

Economists and financial educators advise adhering to the 50-30-20 rule. The idea is to distribute better what you receive, and from that, create priorities within what you should pay. For this, your salary is divided into three parts:
 
• 50% for essential expenses
 
• 30% for non-essential expenses
 
• 20% for saving

Note that the financial commitments of someone who is married and has children are different from those who are single and live alone. If that is the case with you, you can choose the model 70-20-10, if you have more essential expenses

Step 6: Open Savings Account

Open a savings account for each goal. Sounds weird? May be, but this is a proven methodology.

Money is a mesmerising asset. The more you see, the more it motivates to spend. That’s why it is recommended to send the targeted amount of each goal per month to it’s appropriate savings account.

Assume savings account is a money box.

One money box for One goal. Sounds logical?

piggy bank, savings, coins

OPEN Savings account for EACH GOAL..

Having all your savings in the your SALARY account is the biggest blunder. Our mind gets excited to overspend when the money is often seen.

So the trick is to hide your money!!

How? Assume savings account is a money box.

One money box for One goal.

Step 7: Avoid credit cards

Credit cards are a problem for many people. The possibility of deferring payment makes you unaware of what you are spending, and this can end up putting you in a delicate situation.

You can choose to leave your cards at home and use them only for online purchases. Maybe never use them.  

You could even go to your bank and ask them to cancel your line of credit. Extreme situations require extreme solutions.
 
A very reasonable alternative, and to stay in the middle of the transactions of this century, is to opt for a debit card.
 
The illusion generated by not counting physical bills and coins will also exist, but in this case, you can only spend what you have in your account. 
 
You will not be borrowing from anyone, much less from a company eager to charge you interest on interest.

Step 8: Aim for a Passive income

Thinking of how to save money from salary? Then why not diversify your sources of income? The majority of people do not attach much importance to increasing or diversifying their sources of income. 
freelance, work, job

Diversification in income sources is one of the necessary things that would increase our ability to save and increase your income.

- Learn to make money online
- Do Part-time jobs or Freelancing
- Think about starting a side-business

Take into account that what seems like a great sacrifice today will be enjoyed in the future

Rather, they only have a salary that they receive from their job that only provides for their needs. However, diversification in income sources is one of the necessary things that would increase our ability to save and increase your income. See how to earn money online in India?
 
There are many ways and means to diversify or increase sources of income, such as:
 
I. WORK IN A SECOND JOB PART-TIME
 
It is the most prominent means that many resort to in order to obtain more income. Do some research and reflection to determine the most appropriate field for you in which you can work with a second job part-time to achieve more money.
 
II. START A SMALL PROJECT
 
You can work on a small project alone, and with personal efforts, you can collect profits from it. There are a lot of project ideas that do not require a lot of capital, but some of them do not need capital at all. Choose one that is ideal for you and reap from it

Conclusion

With these simple habits, you will make saving from your salary will be possible. All you need is discipline, dedication, and consistency. 
 
In a short time, you will save much more than you ever imagined. Now that we have given you tips on how to save money from salary, it’s now up to put them into practice. 
 
Take into account that what seems like a great sacrifice today will be enjoyed in the future.
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