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.
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.
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:
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”
Step 4: Limit expenses
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
Step 5: Set a saving target
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.
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.
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?
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
You can choose to leave your cards at home and use them only for online purchases. Maybe never use them.
Step 8: Aim for a Passive income
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
Conclusion
SHARING IS ♥️
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Hey Prabha Balakrishnan,
Excellent and well-written post. You have shared an awesome content providing great tips to save money from salary. I really like your tips and the way you have explained & presented them that are so easy to understand. Your all the listed tips are essential to save the money from salary and must be considered. Setting the goals and knowing the take home salary and focus on expenses are so important. Yes definitely setting the goal is necessary, but along with goal having a proper planning is also crucial. As planning is a great key to achieve any goal and we can’t be able to do anything without having a proper plan. Opening a saving account is really a brilliant idea and will surely helps saving money by depositing money directly into an account. Limiting the expenses and setting a saving target are equally essential. Adopting your tips will be a great help especially for those who want to save their money.
After reading this complete guide i gain ideas and learned various ways to save money from salary. AM sure that this post will surely help lots of people & readers. Lastly i would like to say that you are definitely providing good understanding to your readers.
Fabulous work and keep sharing more similar post.
Thanks,
-Aadarsh