When it comes to saving money, many people struggle to determine how much of their salary should go towards savings. While there are rules like the traditional 50/20/30 method, the reality of rising expenses and changing lifestyles makes it hard to stick to such formulas.
So, how can you create a savings strategy that works for you? Let’s look at some practical tips that can help you balance your spending habits and future financial goals.
Why the 50/20/30 Rule Is Tough to Follow
The 50/20/30 rule suggests that 50% of your income should be spent on essentials like rent and groceries, 20% on savings, and 30% on personal expenses. It sounds simple, but in today’s world, where inflation and lifestyle expenses are rising, it’s challenging for many to save 20% of their income.
Take the example of someone earning Rs 50,000 per month. By the time they pay for rent, groceries, and bills, they may only be left with Rs 10,000 for savings and other purchases. Saving Rs 10,000 on a Rs 50,000 salary might look feasible on paper, but then comes the temptation to buy luxury items like the latest smartphone or go on expensive holidays.
The rise in social media influence and advertisements pushes many people to spend more on non-essential items, making it harder to stick to traditional savings rules.
Prioritize Savings Before Spending
Harsh Gehlot, CEO of FinAge, stresses the importance of the principle “save first, spend later.” While there’s nothing wrong with wanting luxury items, it’s smarter to save up for them rather than immediately opting for easy EMI schemes. For example, instead of buying an iPhone on EMI, you could save Rs 5,000 monthly and purchase it later without dipping into your long-term savings.
This approach not only helps you achieve your goals but also ensures you don’t compromise on long-term financial security for short-term satisfaction.
Striking a Balance Between Needs and Desires
Balancing essential expenses with lifestyle desires is crucial. If buying an expensive gadget is a priority, you’ll need to cut down on non-essential activities, like dining out or going on vacations, for a while. However, this doesn’t mean you have to give up your hobbies altogether.
Gaurav Goyal, a SEBI-registered investment advisor, suggests that planning and prioritization are key. Essential expenses like health, education, and future financial security should come first. Once you have a plan for these, you can allocate some savings for luxuries like gadgets or trips. For instance, if you earn Rs 50,000 monthly and want to buy an iPhone, you might need to sacrifice a few leisure expenses over the next 12-18 months to achieve this goal.
Smart Saving for Long-Term Goals
Rather than following rigid savings formulas, it’s better to create a personal financial plan that fits your income and lifestyle. Focus on saving consistently, even if it’s a smaller percentage than the ideal 20%. The key is to find a balance between enjoying life today and securing your future.
By adjusting your lifestyle choices and planning wisely, you can still enjoy luxuries while building a solid financial foundation for your long-term goals.
