how to save money from salary

By Rajesh Kumar, CA, CFP®

Professional Financial Planner with fifteen years of working experience

Former Senior Advisor, SEBI

Reviewed by: Dr. Priya Sharma, Professor of Finance, IIM Ahmedabad*

Technical Review: Amit Patel, CA, Tax Optimization Specialist*

Executive Summary

According to the Reserve Bank of India’s 2024 Household Finance Survey, 67% of Indian households struggle with systematic savings despite having a cultural inclination toward saving. This comprehensive guide, tailored for Indian salary earners, combines traditional wisdom with modern financial strategies.

Disclaimer: This article provides general financial information and should not be considered personal financial advice. Please consult with a qualified financial advisor for recommendations tailored to your specific situation.*

Understanding the Indian Financial Landscape

The traditional Western 50/30/20 rule needs significant modification for Indian contexts. Based on research from CRISIL (2024), here are the recommended allocations:

Metro Cities (Mumbai, Delhi, Bangalore):

• 55% needs (including rent/EMI)
•  25% wants
•  20% savings

Tier-2 Cities (Pune, Jaipur, Chandigarh):

• 50% needs
•  25% wants
•  25% savings

Tier-3 Cities and Below:

•  45% needs
•  25% wants
•  30% savings

Strategic Salary Management for Indians

 1. Structured Savings Framework

According to a 2024 HDFC Bank study, systematic savers in India achieve 3.2 times better wealth creation. Here’s a real example:

Case Study: Anita Desai, IT Professional in Bangalore

•  “To be more precise, through the above system, I was able to save ₹15 lakhs in the year 2024.
•  12% to EPF (Employer matched)
•  15% to PPF
•  10% to emergency fund
•  8% of their equity mutual funds through the systematic investment plan.
•  5% to family health insurance”

2. Smart Expense Management

The Labour Bureau’s Income and Expenditure Survey 2024 reports these average monthly urban expenses:

•  Housing: ₹25,000 (Mumbai/Delhi)
•  Transportation: ₹8,000
•  Food: ₹12,000
•  Healthcare: ₹5,000

Expert-Recommended Cost Optimization:

Housing (Based on RBI Guidelines):

•  Metro cities: 40% maximum of take-home pay
•  Tier-2 cities: 35% maximum
•  Tier-3 cities: 30% maximum

Success Story: Suresh Mehta, Marketing Manager, Delhi

“It was also feasible to decrease the portion of the rent and utility bills from half of the salary to a third of the salary.

1. Relocating to Gurgaon (₹20,000 monthly savings)
2. Choosing public transport (₹8,000 monthly savings)
3. Solar panel installation (₹2,500 monthly savings on electricity)”

 3. Tax-Efficient Saving Strategies

Maximize tax benefits under:

•  Section 80C (₹1.5 lakhs): EPF, PPF, ELSS
•  Section 80D: Health Insurance
•  NPS Additional Benefit (₹50,000)
•  HRA Benefits
•  Standard Deduction

4. Investment Framework for Indians

Based on Income Levels:

Entry Level (₹3-6 LPA):

•  Focus: Emergency fund + term insurance
•  Target: 20% savings rate
•  Priority: EPF + high-yield savings accounts (current SBI rate: 6.75%)

Mid Level (₹6-12 LPA):

•  Focus: Tax optimization + wealth building
•  Target: 30% savings rate
•  Strategy: EPF + PPF + Mutual Funds

Senior Level (₹12+ LPA):

•  Focus: Wealth creation + tax optimization
•  Target: 40%+ savings rate
•  Strategy: Equity portfolio, debt portfolio, and real estate

Investment Options Based on Risk Profile

Conservative:

•  PPF (Current rate: 7.1%)
•  Bank FDs
•  Post Office Schemes

Moderate:

•  Large-cap Mutual Funds
•  Index Funds
•  Corporate FDs

Aggressive:

•  Mid and Small-cap Funds
•  Direct Equity
•  REITs

 Traditional vs Digital Saving Methods

Modern Tools:

•  UPI for expense tracking
•  Auto-payment of bills
•  SIP through apps
•  Expense tracking apps

Traditional Methods:

• RD accounts
•  Post office schemes
•  Gold investments

 Cultural Context and Family Finance

Joint Family Considerations:

•  Emergency fund for extended family
• Term insurance with multiple nominees
•  Healthcare parent’s coverage for 
• Educational savings for children

Implementation Roadmap

Immediate Actions (0-3 months):

1. Calculate take-home salary and fixed obligations
2. Set up automatic bill payments
3. Begin SIP in liquid fund for building an urgent fund

Medium-term Goals (3-12 months):

1. Maximize tax-saving investments
2. Get adequate health and term insurance
3. Start goal-based mutual fund SIPs

Long-term Strategy (1+ years):

1. Real estate investment planning
2. International diversification through mutual funds
3. Retirement corpus building

 Key Government Schemes to Consider

1. National Pension Scheme (NPS)
2. Pradhan Mantri Jeevan Jyoti Bima Yojana
3. Sukanya Samriddhi Yojana (for girl child)
4. Atal Pension Yojana

Regular Review Framework

Monthly Review:

• Income vs Expense Analysis
• SIP Performance
•  Emergency Fund Status

Quarterly Review:

•  Portfolio Rebalancing
•  Tax Planning Progress
•  Insurance Adequacy

Annual Review:

•  Financial Goal Progress
•  Asset Allocation
•  Tax Optimization

Conclusion

Financial planning in India requires balancing traditional values with modern investment opportunities. This framework, adapted to Indian realities and backed by research, provides a roadmap for sustainable wealth creation while considering cultural and family obligations.

Additional Resources

• RBI Financial Education Initiative
•  SEBI Investor Education Portal
•  Income Tax India Portal
•  National Stock Exchange Education Hub