When it comes to saving money, we get tons of advice from various people. There are investment plans, insurances, savings schemes, and many more. But, the main problem is in maintaining the flow of saving money. We start the process of saving money, but with the passing time, we find it challenging to maintain the process. Here, we will read about How To Save Money From Salary Percentage?
How can you maintain the flow of saving money? By keeping yourself engaged with goals. How can you do that? We will help you in knowing the ways which will keep you motivated to save money. Saving money is easy, but you need to understand the process of saving money. By understanding the process, you will be able to know how to maintain the flow. There are various tips and ways which you can use to save money, but in the end, you need some goals which will help you to maintain the flow.
Tactics To Save Money From Salary Percentage
You can use various tactics to save money from your salary and still have a decent amount of survival. Saving money is essential, and one should start as early as possible. If you do not start saving money at an early stage, you will face difficulties. What kind of difficulties? We will tell you about that later on. For now, you need to know the various steps to save money. To help you out in this “savings” journey, here are some of the most effective tactics that you can use.
1. Tackle Down Debts:
If you have started working but have debts in your account, it is better to tackle the debts first. You cannot save money unless you clear off your debts. It is important to clear off debts, as it will help you save the debt money for your future.
Most of us have student loans after passing out of college. When we start doing a job, we plan on saving money but forget about the loan. You should make it a point to clear off your loan as soon as possible. The more you delay the clearance, the higher will be the interest rates. Start clearing off your loan as soon as you start doing a job. Though it might be difficult to clear off the loan and save money simultaneously, in such situations, you can use some simple methods.
You can save money at home while clearing off your debts. Opening a savings account might not be a wise decision while you are still in debt. Hence, start saving at home. You can keep a small piggy bank to save some money for an emergency. When should you open a savings account? You should open a savings account when you have cleared at least 50% of your loan. This is the time when you should open your savings account and start saving money.
When you start repaying your loan, you become habituated about the amount deducted from your account monthly. You make up your mind that you have to live with the remaining amount for the whole month. When you clear 50% of your loan and start a savings account, your mind has already adjusted towards the change. Moreover, you get the chance to settle down the loan with a lesser amount after clearing around 50% of it.
2. Start With Small Steps:
One cannot start saving a high amount of money at once. You cannot jump into saving 50% of your salary at once. It would not only become difficult but would make it impossible for you to survive the entire month. So, how much should you save at first? Start with small steps. If you cannot save 20% as per the budget rule, then drop down to 1%.
The least amount you can save from your salary is 1%. So, start saving 1% every month. When you feel like you can live comfortably even without 1%, start increasing the amount. Do not jump to 10% at once. Increase the percentage of savings by 2% and then 4%, and so on. Do not stick to any particular savings amount. Increase your savings amount slowly. It will help you to know how to live comfortably even after deducting a specific amount from your salary.
3. Decrease Your Expenses:
The major hurdle that we face while saving money is the expenses that we have. If you are planning to save money, then cut down your expenses. If you do not do so, then it will become difficult for you to save money.
How can you decrease your expenses? For decreasing your expenses, you need to know the places where you spend your money. Write down the things on which you spend most of your money and see the places where you can cut down the expenses. To make it simple, sort out the essential things for you to survive and the ones that are not. Start cutting out money from the list of non-essential things. Once you are done with it, you will find enough money remaining in your account. Transfer this money to your savings account.
Sometimes even our essential list has tons of unnecessary expenses. Look at the list and try to cut down the expenses if you can. You can cut down your expenses by managing your utility bills. Try using limited electricity and see the difference it will make in your electricity bills. Likewise, there are other ways too using which you can decrease your expenses. You need to check it out and find ways of decreasing expenses.
4. Interest-Free EMIs:
We can’t achieve our long-term goals without taking any kind of loan. There are instances when we need things immediately and do not have enough money at the moment. These are the times when we seek for a loan. Let’s say you need a laptop immediately, but you do not have the money for now.
Here, you seek for loan or EMI which will help you to buy the laptop at the moment. You pay the down-payment and make monthly EMIs clear off the debt. Here, you would have to pay the interest rates too. Due to this interest rate, the price of the laptop increases. Seek for an option where you can get an interest-free EMI. Interest-free EMIs will help you to save money on the interest. Where can you get this option? Most of the credit card companies provide with interest-free EMI option.
Whenever you are financing an item, look for the interest-free EMI options. This will help you in many ways. You only have to pay the actual amount without spending any extra penny on interest. Most of the online websites are also providing this option for various things. You can find interest-free EMI for gadgets like laptops and mobile phones. Though it is advisable not to take many loans, taking a loan might be the only option left during emergencies. In such times, look for interest-free EMIs to save money.
5. 50% Rule For Low-Interest Rates:
What is the 50% rule? The 50% rule states that a person should save at least 50% before taking any kind of loan. Let’s say you want to buy a car. The price of the car is INR 6 lakhs. It might be challenging to save the entire amount, but you can save at least 50% of the amount.
When you save 50% of the amount, you only need a loan of INR 3 lakhs. Here, not only the debt amount is less, but even the interest rates will be less. The 50% rule will help you to get loans with fewer interest rates. Instead of having loans with higher interest rates, it is better to save half of the loan amount for buying anything.
Moreover, it will help you to save money for your future. If you take a loan for the entire amount, it will become difficult for you to save money as most of the salary will go into EMIs. But, if you take a loan of a small amount, you will find it easier to save money even while paying off the debts. Hence, always try to save at least 50% of the loan amount for any goal.
6. Shopping With List:
Whenever you go shopping, make a list. Prepare a list of all the things you need to buy and state the amount you need for those thongs. Make a budget, and then go shopping. Make it a habit to stick to your list.
Moreover, prepare the list in detail. List the brand which you are using and stick to that particular brand only. When you visit a shopping mart for grocery shopping, you will see various things on the shelves. Though it might seem normal to you, the marts do spend tons of money on shelf arrangement. They arrange the shelves so that people will buy the things they see first instead of getting their regular items.
Why do people do so? Most people do not like to search for the regular pack that they use and buy the one visible to their eyes. Others find the packets in the front attractive and hence buy it. Even if the price of the packet is higher than your regular one, you will get the urge to buy it. Though you might think of the price as slightly higher, it ultimately makes a difference in your budget and will affect you.
You need to stick to your list as it will help you maintain the balance of our budget. Even if you are opting for online shopping, make a list and stick to it. If you do not stick to the list, you will get your budget ruined.
7. Better Savings Plan:
If you do not have a nice savings plan, you will not get good returns. There are various types of savings plan that you can look for your savings. The important thing here is that the savings plan should be risk-free and should provide high-interest rates. Though it is difficult to find a savings plan which will provide you with the above 2 conditions, there are some plans where you can invest your money.
a. Postal Services:
Postal savings schemes are the safest savings plan that you can get in the market. The postal savings scheme has two types of savings plan which you can get. One is a fixed deposit, while the other plan is known as a recurring deposit plan. The fixed deposit helps you in locking your money for a certain period. You can open a fixed deposit account while saving for your long-term goals. It will help you in locking your savings and sparing you from getting the urge to spend the money.
On the other hand, a recurring deposit is a normal savings account where you have to deposit money every month. This plan is good for achieving your short-term goals. Both RD and FD plans provide excellent interest rates, which will help you in getting good returns. If you are unsure about where to save money, you can always go for a postal savings scheme. The savings scheme is risk-free and gives your savings full security.
b. PPF & EPF:
If you are working in a government organization, you must have an EPF account. The EPF scheme is a government scheme where the employee and employer deposit money every month. During the time of retirement, the employee gets the entire EPF amount along with interest. This is a type of savings plan where the money deducts from the account of the employee automatically. But, if you are working in a private organization, then you can opt for a PPF account.
PPF is also a government initiative where a person can save money and get higher interest rates. The least amount you need to deposit in your PPF account is 500 bucks, and the interest rates are around 8%. During the time of retirement, you can get the entire PPF money along with interest. Both PPF and EPF are risk-free and completely safe to invest your money. These plans are best for long-term goals and will help you to generate a large retirement corpus.
c. Automated Savings Account:
If you find it difficult to save manually, you can opt for an automated savings account. An automated savings account will directly link with your salary account and will transfer the savings amount. You can talk with your bank and link your savings account with the salary account. You have to state the amount you want to transfer to your savings account, and that amount will automatically get transferred whenever you receive your payment. Automated savings account help you to save money without any kind of distraction.
Moreover, you get fair interest rates on the savings account. Before opening an automated savings account, you need to know the interest rates and the returns you will get on your savings. Go for the plan, which is less risky and provides a decent interest rate.
8. Invest In Insurance:
Insurance policies are the kind of investment that one should make. Why? Because they provide higher benefits. We save money for the betterment of our family. When you invest your money in an insurance policy, you are investing money for your whole family. There are various insurance policies, and you should know about each of them before investing your money.
a. Health Insurance:
Health insurance is the most common type of insurance policy that a person buys. Not all companies provide medical facilities. With the rising price of medical treatments, it is better to buy health insurance. It will help you to cover all the medical bills and save money on your treatments. You have to pay an annual premium fee for the insurance, but it is better to pay a premium amount of 15,000 bucks rather than spending the entire salary for the treatment. There are various health insurance types, like individual insurance, family health insurance, maternity health insurance, etc. Health insurance will help you in saving money on medical treatments and provide you with other benefits too.
b. Life Insurance:
Life insurance policy is the one which we buy for our family. We do not know what might happen next, and it is better to have a backup for the family. Buying life insurance prepares your family for the worst conditions. Why should you buy a life insurance policy? Because here, the premium is less, and you will get higher returns. You can buy a term life insurance and pay a monthly fee for the policy. There are other types of life insurance, too, which you can go through with your bank. Life insurance helps the family in having a financial backup in case the policyholder dies. It helps the family to remain stable and move forward in life.
c. Property Insurance:
At one point in time, we need to buy a home. Buying a house is a long-term goal that every individual has. But, it is important to have home insurance as well. Home insurance will cover any damages that might occur due to calamities, fire, or any other thing.
Other than home insurance, there are other types of property insurance as well. Most of the people have their shops and offices which should be insured. The property insurance makes sure that the policyholder gets all the losses covered on the property in case of any calamity. It will help the person to have a financial backup, which will help him/her to set up the office or shop again.
Investing money on the insurance policy will help you to get financial backup in any kind of problem. It is a type of savings that we make for any kind of emergency that might occur. Though we have to pay the premium fees for the insurance policy, it provides us with tons of benefits in return. There are other insurance policies and a child insurance policy, a bit-size policy, and many more. Each of these insurance policies is designed for a specific type of emergency and ensures that the policyholder and the nominee get the financial backup they need.
9. Saving For Near Future:
When you start saving money, you need to fix some goals for yourself. It is better to set goals that you can achieve shortly, like in a year. When you set goals for yourself, you are motivating yourself to save money for the goal.
Focus on the near future for now and save money for it. When you achieve your short goals, you will boost your need to work towards higher goals. It will further help you to know where to invest and how you can save more money.
Once you start saving money, you will find ways to save more money and get higher returns. You will slowly get the idea of investments and risk-free funds where you can get higher returns. How can you save money for your near future? Prepare a list of the things that you want to achieve in the next year. After making a list, state the amount that you need for each thing. After knowing the amount, plan out how you are going to save. You can go for a savings plan and start saving money.
By investing in a savings plan, you will get higher returns too. These returns will help you to achieve your goals quickly. Meanwhile, you need to plan out your budget accordingly. You can use a budget planning app to create your budget. It would help you to know how much you should save for each goal and how much you need for the month. Follow the budget strictly, and you will be able to save enough for your goals.
10. Start A Side Income:
Most of the youth do not get enough money while joining a company. Though they try to survive with the salary, it becomes difficult to save money with low income. Though there are methods to save money even with low income, it is better to find a side income for saving money.
Nowadays, people look for various sources for side income, which will help them to have a sustainable life. How can you find a side income? You can look for various part-time jobs or internships available on the internet. Most of the internships provide work from home, which allows you to work from the comfort of your home. Moreover, you can even look for side income in your nearby library or café where you can earn a few bucks for working an hour or so.
Side income gives you the edge to save more. It will help you to increase your savings amount and have enough money for your goals. Though you can save money from a small salary, it might not be enough for all goals. It is important to start a side income if you want to save more money.
Look for internships and freelancing jobs in social media. Most of the companies look for freelancers in social media. You can connect with the companies directly and start working for them immediately. By working for 2-4 hours a day for the company, you can earn a few bucks for yourself. It is highly advisable to find a freelancing income in the field of your interest. When you work in an area of your interest, you find it relaxing to work and even feel like working more. This gives your mind a boost to work more, which will help you earn more money.
11. Open An Emergency Account:
An emergency account is different from a savings account. A savings account is the one where you deposit money for achieving your goals. You continuously withdraw money from the savings account for your goals. On the other hand, an emergency account is an account where you store money for emergencies only.
An emergency account is the one from where you do not withdraw money unless it is necessary. Why should you open an emergency account? You should open an emergency account to prepare yourself for anything worse. Try to contribute at least 5-6% of your monthly salary to the emergency account and do not touch it at all. The money in the emergency account will grow due to the interest, and it will help you during the time of emergencies.
When can you use the money from the emergency account? You can use the money from this account during the time of unemployment, calamities, or any such situation. It will help you to face the situation without any difficulty. With a financial backup, you will be able to deal with such situations easily. Moreover, an emergency fund will further help you to achieve a state of financial independence. What is financial independence? We will discuss it later.
12. Everyday Savings:
Make it a habit to save money every day. How can you save money every day? By following some simple steps.
a. Save Money On Transportation:
Transportation is one of the major areas where we spend the maximum amount of money. How can you decrease the expenses here? Try using public transportation to travel. By using public transportation, you will be saving tons of money on fuel. You can create a bus or metro card for your convenience and use it. Another method to save money on transportation is by sharing rides. Try to go for carpooling or share your ride with your colleague. By doing so, you are dividing the money on fuel and saving money too.
b. Saving on groceries:
Groceries are essential things for us, and we cannot ignore it at all. But, we can save money on groceries too. Instead of buying groceries and vegetables from the shopping mart, try going local. Look for your local daily market or farmer’s market for your everyday groceries. You would not only get fresh items but even get the items at a reasonable price. Moreover, prepare a list while going for grocery shopping and stick to it. Do not spend money on things that are not present on your list.
c. Saving On Electricity Bills:
You can save money in your electricity bills by switching. Switch to an energy-efficient lighting system. It will help you to save tons of money on electricity bills. You can use CFL and LED lighting system for your home. Moreover, make it a habit to unplug the devices when not in use. Though the change might be small, it will save you a few bucks. Contact your service provider to know about the deals and offers that they have. Most of the service providers give cashback and discounts when the person uses an online payment method. Know about such deals and use them effectively.
d. Digital Payment:
Most of us have switched to digital payment mode due to various advantages. Most of the payment apps even provide with coupons and discounts whenever you use their service. Make it a habit to use payment apps while in the mall. By doing so, you get the chance to earn cashback from the mall. Not only that, but various shopping websites have also partnered with payment apps and provide customers with various offers and discounts. Look for such offers before shopping and use them.
By using such simple methods you will be able to save money every day. When you start saving money, you find yourself looking for ways to save more. You find an alternative for each thing and you should use such alternatives. It will help you to know about the various process of saving money. Start with simple methods and then proceed with investments and all. Though the beginning might be difficult and confusing once you take the first step, it will start becoming clearer.
How Much Money Should You Save Per Month?
There are various tips and advice that you will get on how to save money. But, the main question here is that, how much money should you save every month? How much savings is enough to achieve your financial goals? Each person has a different financial goal which makes it difficult to state the percentage of money each person should save for achieving the goal.
But, there is one common budget rule which has proved to be effective for all kind of financial goals. It is the 50/30/20 budget rule. This particular budget rule has helped people in knowing how much they should save for their goals.
According to the 50/30/20 rule, one should spend 50% of the salary on the “needs,” the 30% on “wants,” and should save the remaining 20%. This budget rule divides the salary into 3 parts and then states the category for each part.
The first 50% of the salary is reserved for the “needs.” Here, the “needs” include things like debt, rent, electricity bills and as such. In simple language, you should spend 50% of your salary on things which you need for surviving the month. You cannot include entertainment, partying and shopping in this “needs” category.
After spending the 50% on “needs,” you have the remaining 50% of the salary. Here the 50% is divided into 2 parts: 30% wants and 20% savings. Save 20% of your salary and then spend 30% of the remaining. You must save the 20% money first, as you might get the urge to spend more than 30% of the remaining money.
Once you have saved the 20% of the money, you can use the 30% to spend on your “wants.” What will the “wants” category contain? It contains things like dining out, partying, going on trips and as such. Basically. The 30% “wants” consists of things that give you pleasure.
Goal-Based Investments For Saving Money
The most important thing that a person needs while saving or investing money is goals. Though people invest money with the idea of getting higher returns, it is not right. Here, you are investing your money in places where you have the chances of getting higher returns and you should invest it by keeping your goals in mind.
When you invest your money for your goals, you get a better idea on how to invest your money. Goals help you in knowing the places which would help you in getting the interest rates which you need at the moment. If you are not investing money based on your goals, then there are high chances that you would lose your savings. With goals in mind, you have the fear of risks and do not want to lose any money in the process. This gives you an idea of the risk-free investments where you can invest money and get good returns. Everyone should practice goal-based investment, as it gives you the motivation for saving money. There are two types of goals which everyone should have; short-term and long-term goals.
1. Short-Term Goals:
Short-term goals are the goals which require less time to achieve. These are the goals for which you need to save money for a year or so. Short-term goals are simple goals which are meant to motivate the person to save money. Most of the short-term goals are small “wants” of the person which he/she wants to achieve.
A short-term goal can be anything, like a new gadget, a vacation and similar things. These are the goals which are meant to fulfil the small demands of the person. They are not meant for the long-term and will not help in the long run. Why should you have short term goals? You should have short-term goals to keep you motivated throughout the process of saving money.
When a person achieves a small goal, he/she gets the boost to save money for more such goals. This helps the person to know the importance of saving money, which will help him/her in the long run. Short-term goals are only for motivating the person to start saving money. What can be a short-term goal? Here is a list of things which we can list as short-term goals.
- Buying a new phone
- A new laptop
- A vacation with friends
- Repairing parts of your house
These are the things for which you need to save for a year or even less than that. Though short-term goals are not “needs” but they are important to make a person realise the importance of saving money. Achieving short-term goals is the first step towards making a goal-based investment.
2. Long-Term Goals:
Long-term goals are the goals which take around 8-10 years to achieve. Long-term goals are the goals which are going to help you in the long run. These are the goals which every person needs in his/her life. Though one can avoid a short-term goal, you cannot avoid long-term goals as these are the goals which will help you in your future. What can be long-term goals? Here’s a list of things that are considered as long-term goals
- Buying a house
- Retirement Savings
- Paying off mortgage
- Saving for education
These are the goals that you cannot avoid under any circumstances. These are the goals that are important for you to have a comfortable life. Though long-term goals take a lot of time to achieve, they are important and are useful not only for the person but for the whole family.
Though short-term and long-term goals are different, both are important. While long-term goals take a lot of time to achieve, short-term goals ensure that the person does not get demotivated while saving money. Moreover, when you start saving up for long-term goals, your short-term goals change. Instead of spending the savings on trivial things, you should start locking up your savings. Here, locking the savings becomes the new short-term goal for the person. How can you lock your savings? You can lock your savings by investing in gold. Another method to lock savings is by using a savings account which can lock the amount for years and provide nice interest rates.
Short-term goals avoid you from spending the savings on trivial things while you are saving for long-term goals. Short-term goals are for “wants” while long-term goals are for “needs” and both are equally important. You cannot save for long-term goals without saving for short-term goals. You would need motivation and boost for saving money which only short-term goals can provide.
Financial Independence: Major Reason To Save Money
Financial independence is the major reason for saving money. What is financial independence? Financial independence is the status or standard where a person can live comfortably without relying upon any kind of employment. It means that the person has enough income which can help him/her to carry on with daily expenses without having any kind of job.
Now, how can one achieve financial independence? You can achieve a state of financial independence by saving money. We save money for having a financially secured life after retirement. This financially secured life is the path to financial independence.
Some people earn a high salary and do not think of saving money. Even if you are earning more than enough, you should save money. There will come a time when you will retire and if you do not save money, you won’t have any savings during the time of retirement.
Now, the next question which we face here is how much should we save? As per the budget rule, a person should save 20% of his/her monthly salary. But, not everyone finds it possible to save 20% of their salary. People with low income find it difficult to save 20% of the salary and then live comfortably. So, how much should one save? Saving money is more like experimenting on the way.
If you are unable to save 20% of your salary, start with saving 1%. It is the least amount you can save and it will not affect your expenses at all. Start with 1% and then gradually increase the percentage of saving money. Here, you need to experiment with your savings amount. Try saving 5% and see if it affects your expenses. If it does, then decrease it to 3% and if it doesn’t, then save 5%. It’s all about experimenting with the percentage of saving and seeing where you can save money.
If you can save 20% of your salary without any difficulty, then try to increase the percentage accordingly. Next time, increase the percentage and make it 22% and see if you can live by saving 22% of your salary. The main thing to remember here is that you should not stick to a particular amount to save money. You should continuously increase the percentage of savings.
How To Achieve Financial Independence?
There is a particular process that you need to follow to achieve the financial process. This process consists of 3 steps: Preconditions, Implementation, and Stages of financial independence. Each of these steps is discussed in detail below.
1. Preconditions For Achieving Financial Independence:
Before attaining financial independence, one needs to achieve certain preconditions. Only after achieving these points, a person will be able to achieve a state of financial independence. What are these preconditions? There are 3 preconditions that you need to take care of.
a. Creating Emergency Fund:
Other than a savings account, you should also have an emergency account. Why? The emergency account will help you to deal with emergencies easily. A savings account helps us in saving money for achieving our goals. When we save enough money, we withdraw it from the savings account to achieve our goals. Whereas, an emergency account is the one where we deposit money only for emergencies and do not withdraw unless it’s necessary. Hence, it is advisable to open an emergency account too.
Various banks can offer you with higher interest rates for your emergency account. How much should you deposit in your emergency account? Make it a rule to deposit at least 5% of your salary in your emergency account. By doing so, you are preparing yourself for any kind of emergency that might happen in life. Be it a natural calamity, unemployment, or any other emergency; you will remain prepared when you have an emergency account.
b. Clear Debts:
The major hurdle towards achieving financial independence is debts. Debts are the primary reason why financial independence becomes difficult for people. Most of the freshers have student loans when they start working. It is important to clear off the debts if you want to attain financial independence. List out all your debts and then start with the debt, which has higher interest rates. Tackle the problematic debts first and then come to the smaller debts.
Take one debt at a time and clear it off. Most of us take debts for achieving our long-term goals, like a house loan. Make sure that you have saved at least 50% of the amount before taking the loan. By doing so, the interest rate of the loan will decrease, and it will help you to clear it off sooner.
c. Cushion Savings:
Cushion savings is often confused with emergency savings. What is cushion savings? It is the type of savings that will help you manage your expenses during an emergency. You should have at least 4 months of savings, which will be enough for you to survive without any employment. You can say that cushion savings are a trial form of financial independence.
Save money, which will help you to survive at least 4 months without any proper job. By doing so, you are allowing yourself to realize the importance of financial independence. Moreover, it will help you to manage your life normally during any kind of emergency.
2. Implementing Financial Independence:
After you have fulfilled all the preconditions, you need to take some steps to implement your financial independence. One of the steps to attain financial independence is by earning more passive income. Passive income is the type of income that you get outside your job. It is more like a side hustle and helps you in earning a few bucks. But, only earning enough passive income is not the only step. There are other steps, too, which you need to take for attaining financial independence.
i. Having An Ideal Income Model:
An ideal income model will help you implement your dream of attaining financial independence. How can you have an ideal income model? First, you need to have a frugal lifestyle. A frugal lifestyle is the kind of lifestyle where you live strictly by your budget. Here, you spend money only on your “needs” and there is no space for any “wants.” A person who has a frugal lifestyle is the one who saves enough money from his/her salary. Once you start living a frugal lifestyle, you will be able to save more money. Though the beginning might be difficult, ultimately, you will find it useful.
Other than that, a person should have continual growth in income. Work in a place where you know there will be an increase in your income. A place where you are not getting any increments will leave you devastated. Find a place where you get increments for your skills.
ii. Save More:
The next step towards achieving financial independence is by saving more money. Once you start saving money, make it a habit to increase your savings percentage by 1% every one or two months. By doing so, you are making the path to financial independence a lot easier. You can save more by trying out a frugal lifestyle. Spend money only on the things that you need and not for any kind of “wants.” Once you start doing that, you will find yourself saving more money than you did earlier. Though the beginning might be a bit difficult, you will find it easier when you cross the 20% savings rule.
As per the budget rule, you should save 20% of your salary. But once you reach the 20% mark, try increasing the percentage. After crossing the limit, it will get easier to save money. By saving more money, you are decreasing the time you need to attain financial independence.
iii. Investing Properly:
Investment is a major part of achieving financial independence. If you are not investing your money, then you won’t be able to achieve the state of financial independence. Where should you invest your savings? You should invest money in equity funds, mutual funds, and other investments.
Though these plans are full of risks, the returns are higher than a normal savings account. But, you need to know about each type of investment before proceeding. Learn about the investment plans and then invest your savings in it. The investment gives you the chance to get higher returns, helping you attain your goals.
Moreover, investing in equity does not require much money. You can start your investment with as low as 500 bucks and then increase the amount accordingly. Know how to invest money to attain financial independence.
3. Stages Of Reaching Financial Independence:
Reaching financial independence is a difficult task, and one cannot do it in one go. If you divide the total path into 3 parts, you can easily cover the path to financial independence. Financial independence is divided into 3 parts; basic independence, comfort independence, and luxury independence. Take one step at a time and cover each stage individually. By doing so, it will help you to attain the final state of financial independence. Here, we will explain each stage of financial independence in detail so that you will know how to attain the stages.
a. Basic Financial Independence:
The first stage of financial independence is “basic independence.” As the name states, basic independence means building enough savings to cover a person’s necessities without relying on any kind of employment. To achieve this stage, you need to invest money in a place that will yield maximum returns for you. Make sure that the returns should be enough for you to cover your basic needs.
What are the basic needs? Food, electricity bills, rent, transportation, and as such. These are the things that are considered basic needs. To earn maximum returns for basic independence, you need to look for plans with interest rates of around 6-8%. When you achieve the first stage of financial independence, you can cover all your basic needs without any proper job.
b. Comfort Independence:
As the name suggests, comfort independence means covering all the “wants” of the person without depending on any employment. This is the second stage of financial independence, and here, a person should have enough money to cover all the “wants” that he/she has. The asset in this stage is bigger than that of basic independence. A person needs to save more money and invest it properly for better returns. What are the “wants?” Here, the “wants” consist of things like entertainment, shopping, partying, and many more. Why should you have comfort independence? You should achieve this stage of financial independence as it will help you to live a comfortable life. Though a person can live his/her life with basic needs, a person does need comfort. We save money for having a comfortable life, and to achieve this, we need to save enough money, which will help us in getting all the things that we want. To lead a comfortable life, you should invest your savings in a plan which will provide you with higher returns and cover all the charges for your “wants.” By doing so, you will be able to have a comfortable life.
c. Luxury Independence:
The final stage of financial independence is achieving “luxury independence.” You might ask that after achieving comfort independence, why should one achieve luxury independence? A human being has tons of needs and wants. Though you might have achieved your comfort independence, there will come a time when you would want money for enjoyment and luxurious demands. What kind of demands? Demands like buying a nice house, a better car, a vacation with friends, and as such. How can you achieve those? By attaining luxury independence. It would become difficult to achieve these things with comfort independence as the price of each demand is higher than those of normal “wants.” Hence, you would need to attain luxury independence to fulfill all the demands. Make a list of all the things that you want and state out the price of each thing. Save at least more than 50% of the amount and then invest it in a better plan. Make sure that the returns are higher. By doing this, you would be able to achieve the final stage and hence be “financially independent.”
Attaining financial independence is the ultimate goal of a person. Nobody wants to live a life with a weak financial covering. The way to financial independence is by saving money. Once you start saving money, you are preparing yourself for achieving the state of financial independence. There are various investment plans that can help you in your financial independence journey, but you should know about them before investing money. Not every investment is risk-free, and you need to know where you can invest money even if the plan consists of risks. To do this, you need to have enough knowledge and understanding of the investment plans you seek.
Financial independence is important as it makes us live a comfortable life. Who doesn’t want to live peacefully with enough financial backup? Financial independence is the ultimate goal that every person has in his/her life. At the age of 60, it becomes challenging to work anymore as the body starts giving up. If you do not reach the state of financial independence during such time, then it will become difficult for you to have a peaceful retirement.
How can you achieve financial independence? By saving money. It would be best if you started saving money as soon as you start working. If you start working at the age of 25 and start saving immediately, then by the age of 60, you will reach the state of financial independence.
Here, the amount of saving also matters. You need to save enough money, which will manage all your expenses. Start with a small amount and then keep increasing the amount by small percentages. By doing this, you are allowing yourself to live a frugal life and save more money for a better future. One needs to save at least 20% of the salary. But, sometimes it is not possible to save such amount from the salary. So, start from a small amount and keep increasing till you reach 20%. When you reach the limit, do not stop saving money. Keep on increasing the amount and save as much as you can.
Frequently Asked Questions
1. Is it necessary to save 20% of salary? I have a salary of 18,000 and it is difficult to save 20% of my earnings.
No, it is not important to save 20% of your salary. This 20% savings rule was made to make people understand the concept of saving money. You can start by saving 1% of your salary and then proceed. See if you can live nicely by saving 1% and then increase the amount accordingly.
2. How much time will it take for me to reach the state of financial independence?
To reach a state of financial independence, you need to start saving money as soon as you start working. It will take a long time to reach this state, as there are many hurdles. You need to continuously increase the amount of savings to reach the state of financial independence sooner.
3. What is the importance of emergency funds?
Emergency funds help you in getting a financial backup during critical situations. When you deposit money in your emergency funds, it keeps on growing due to interest rates and provides you with higher returns.
This particular return will help you when you are in a critical condition like unemployment or any natural disaster. It will help you to cope up with the situation by providing you with financial help.
4. Should I open a savings account in a bank or a postal office?
You can open a savings account in any one of the above. But, if you are going for a bank savings account, you need to go through the interest rates that they are providing and the type of risks that are present.
If you are not sure about bank services, then you can always go for postal services. Postal saving services are completely safe and will keep your money secure. Besides that, you will even get nice returns on your savings account.
When a person starts doing a job, the first thing that comes in mind is how to spend money. We find certain ways in which we can spend money and make ourselves happy. Though thinking like this is not bad, it prevents you from saving money. Apart from finding ways to spend money, you should also think of ways to save money. Spending money will give you pleasure and happiness in the present but saving money will help you in having a comfortable life in the future. We earn money to have a comfortable future. Saving money is not a choice, it’s a necessity which everyone needs to understand. When you save money, you are saving that for your better future. Hope, this article helps to save money from salary percentage.