How much should you save?

When it comes to budgeting or making a budget, people are often in a dilemma about how much they need to save? Saving is income that is left post all your expenses. It is rightly said that when you receive the income first save and then spend. However, people often do the exact opposite. When they receive the income they first spend and if any amount is left then it automatically turns into saving. This is not a smart thing to do. A Smart Budget helps you avoid unnecessary excessive spending and helps you save well. Budgeting doesn’t mean that you should stop living and just concentrate on savings. It, in fact, helps you to spend when you actually need something rather than buying it and regretting it later.

So, now the question is how much one should save? This actually depends on your income, expenses, liabilities and your spending habits. Personal finance being dynamic in nature one strategy doesn’t apply to all. However, there is a general thumb rule of 50-20-30. This means 50 per cent ‘Needs’, 20 per cent ‘Savings’ and 30 per cent ‘Wants’. So, with this strategy when you receive your income you would spend 50 per cent of it on your ‘Needs’ like your household expenses, insurance premiums, etc. Then 20 per cent of your income should be ‘Savings’ which you may invest for achieving certain financial goals and finally, 30 per cent of your income can be used for ‘Want’ like buying a gadget, taking a personal loan for a vacation, etc. While using this strategy it is to be noted that your EMIs (apart from EMIs on your first home) should not be more than 30 per cent of your expenses.

How to start? You can start with first building an emergency corpus which should be enough to take care of your 3 to 6 months expenses. However, kindly note that the number of months of expenses would differ from person to person depending upon his/her occupation. So, with your 20 per cent savings first, build the emergency corpus. This will ensure that even in the cases of loss of income you would be able to survive till your next income starts coming in. Further, you can start saving for your retirement and other important needs and wants. This will help you manage your personal finances with ease.