How much money should you save every month from your income?

 

The first biggest habit to create long-term wealth and financial freedom is saving and investing your hard-earned money. Havin good saving corpus can help you when there is emergency and investing can help in compounding your money and take you closer towards financial freedom.

So, how much should you save every month from your income?

General rule of thumb is 50:30:20 , that is 50% of your income should be used for your needs which are essential like food, rent etc. 30% to be used for your wants, that is buy yourself clothes, vacation etc. 20% should be used for saving to build a emergency corpus and investing.

All you savings or investing should be goal based. If you are 26 an you want to buy new car in 3 years then you can try saving extra money towards your car purchase by starting SIP in less riskier instruments like debt mutual funds. Other example would be you want to take vacation to Himanchal by end of the year then you can start saving money towards it throw monthly savings from your want portion (30%). This ensure there is less hassle fulfilling your needs and there is no big hole in your pocket when you fulfill your needs.

There is no rule we should follow this as our spending depends on age and income as well. If you don’t have any dependent and you only spend on yourself then it would be wise to save and invest more. That is you can save up to 40% of your income and invest aggressively after creating sufficient emergency fund. At early age you can take more risks so you can increase exposure towards your equity portfolio.

As you grow older there is more dependents like your kids education etc and expenses increases. Also, your risk appetite decreases as your only focus is towards retirement corpus and financial freedom. That’s why investing earlier on in your life becomes much more important.

When it comes to saving its always advisable to do it systematically, that is invest in stock start of the month and do SIP of mutual funds by start of the month with bank auto pay. So that savings can become a habit overtime.

For emergency fund you can have and alternate bank account, so that you are not tempted to withdraw money every now and then.

Best advice I have come across is to save first and spend later. We generally spend by the start of the month and later struggle to save or invest the money this is very bad trait and needs to be addressed as early as possible once you start earning your money.

20% saving is very good minimum amount because people to fail to save anything and gets trapped with credit card bills and debt which can ruin you goal to have financial freedom.

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