How to Start Saving? - A Guide to Managing Monthly Salary for Young Earners

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Money management is something that many young individuals at the start of their careers struggle with. In fact, many of them fail to realize the importance of saving in the early phases of their careers. They hold the view that with so many needs and wants to fulfill, it is near impossible to save anything from their comparatively low salaries; so they don’t even bother.

If you are one to hold such a view, you should know that it isn’t really that difficult. The hardest part is simply starting, and with a little effort, you can begin saving from as early as your first working month.

Here is a short guide to help you start managing your salary and make some savings:

1. Record expenditure: The first step to managing your income is to create a record of how much you spend per month. Ideally, it is a good practice to record your every expenditure down to the rupee. This would include every expenditure from house rent and loans to fuel expenditure, movies, and coffee. You could refer to your bills and credit/debit card statements for this. Note: It is thus a good habit to save all your bills and receipts.

After listing all your expenses, put them into categories. For instance, you could categorize them as

  • Set expenses: House rent, loans, and mortgage, insurance, taxes etc.
  • Utilities: Electricity, Water, Phone bills, internet etc.
  • Food: Groceries, eating out, coffee, alcohol etc.
  • Personal care/Health: Gym, medicine sports etc.

You can categorize according to your needs, and make it as detailed as you want it to be. The purpose of it is to simply understand how much you are spending on specific things.

2. Create a Financial Goal and Plan: Management of anything requires proper planning, and financial planning is a must for effective salary management. To create a plan, you first need a goal. Start with setting a long-term financial goal for yourself, such as having ‘x’ amount of money in 5 years’ time. However, make sure that this goal is realistic and achievable.

Once you have set a reasonable goal, you can begin formulating a plan to manage your salary. For example, the ‘50/30/20’ financial plan is a popular method for managing salary, where you set apart 50% of your salary for set expenses, utilities, and food; 30% for less important but necessary things such as clothes, gym, TV etc.; and 20% as savings, or for unexpected expenses. This plan and method need to be personalized to be one that is most effective in achieving your goal.  

3. Make spending adjustments: Now that you have identified your expenses and created a financial plan, you might need to adjust your expenditure accordingly to meet your financial goal. If you are spending more than your financial plan allows, then make adjustments to bring yourself in line with your plans. However, try not to cut down on things that lower your quality of life. For instance, gym, good food, and medical check-ups are important, and you might instead want to cut down on spendings on expensive clothes and leisure activities.

4. Investments: Money is often the best tool to make more money, and investing your saved salary in the right places can help you reach your financial goals quicker. Once you have a significant amount of money in savings, you might want to consider investing. Rather than letting your savings sit idle, it is always beneficial (although a bit risky), to make investments to further increase your financial strength.

There are many areas where you can invest, such as stocks, schemes or commodities such as gold. You could also consider investing in Provident funds and CITs where you could also benefit from tax exemption.

When you decide to invest in anything, always research and gain as detailed information as possible, and consult trustable sources. It is also safer to diversify your investments and not have all your money caught up in one place.

5. Watch your savings grow: Lastly, Monitor your savings, investments and financial status regularly. Firstly, it will keep you knowledgeable about your own finances, and secondly, will help you stick to your financial plan. Additionally, you can also identify and fix problems quickly.

Watching your savings grow can also motivate you to better manage finances and further limit expenditure, which in turn makes you financially stronger.

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