How Much Money to Keep Aside from Your Monthly Income for Future Planning

It is imperative to plan for emergencies, little luxuries here and there, and irregular expense such as vacations, holidays, buying a car, renovating your home etc. Planned and regular savings will help you lead a more financially secure life.

Financial gurus have devised many rules of savings such as the 10% saving rule and the 15% retirement rule. 10% rule says that you should save one tenth of your income every month using saving accounts or by making safe investments. The 15% retirement rule says that you should set aside 15% of your income towards retirement savings after paying off your credit card dues, car loans and mortgages. Many other financial gurus suggest that the best way to inculcate a habit of saving and frugal living is by trying to save half of your salary from the very beginning.

Savings should comprise of long-term, short-term and retirement savings. Long term savings include investments in fixed deposits, stocks, bonds etc that give you long term benefits. Short term savings include money saved in current accounts or savings deposits for purchase of appliances, gifts, vacations, repairs and other irregular, but predictable expenses. Retirement savings is the money saved for old age through payroll-deducted 401(k) contributions or through any other method like an IRA.

The amount of money that you should save from your gross income depends on your individual saving goals. It depends on your current age, how much you make, how stable your job is and how much you have already saved. It is important to understand that the sooner you start saving the lesser the proportion of income you will be required to save in future.

Self- employed people or people working in a volatile industry need to set aside more savings and have larger emergency funds. If you have a number of dependents such as children, non-working spouse or parents, then you must save a higher percentage of your gross income. Your savings also depend on your personal goals such as retiring early or planning a trip abroad.

Once you have decided on your savings goal, you must religiously work towards it. Arrange for an automatic transfer of a certain proportion of your salary to your savings account or fixed deposit. Cut down on extra expense each month by using saving coupons, availing discounts and even carpooling. Chart out a budget and stick to it. The golden rule is to start saving a portion of your income early on in life, and this will enable you to buy your dream home in the future or help you lead a comfortable life after retirement.

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