How much to save and where to start?

We can learn a lot from Rekha’s journey when implementing essential steps in managing personal finances. Let us take a closer look at it to understand savings better.

Before starting my enterprise, I set 3 types of goals for myself

Short Term Goals	Up to 1 year
Medium Term Goals	1 to 5 Years
Long Term Goals	More than 5 Years

Some examples of these goals are as given in this table

	Savings Target	Monthly Savings	Time (Years)
Short-Term	Buy a Phone	₹ 700	1
Medium-Term	Open a Shop	₹ 1200	5
Long-Term	Education	₹ 1000	10

What are your short, medium and long-term goals?

Write them down in the form of a list!

I also made some adjustments to my monthly budget to meet my savings targets.

Old budget

This was my budget earlier.

I was only able to save ₹ 2000 per month.

Income/earnings	₹ 20,000
Mandatory Expenses (rent, food, electricity, gas, transport etc.)	₹ 10,000
Non-mandatory expenses (eating out, movies, travel, hobbies etc.)	₹ 4,000
Emergency Funds	₹ 4,000
Balance	₹ 2,000

New budget

I wanted to save more so I modified my budget as shown in this table.

With these adjustments, I was able to reach all my savings targets and goals!

Income	₹ 20,000
Mandatory Expenses (rent, food, electricity, gas, transport etc.)	₹ 10,000
Non-mandatory expenses (eating out, movies, travel, hobbies etc.)	₹ 1,500
Emergency Funds	₹ 4,000
Balance	₹ 4,500

Quick Tips

By following these tips, we managed to increase our monthly savings. You can try them too!

Instead of buying clothes for every festival or event, shop only for the important ones

Quick Tip

Watch free shows and channels instead of paying high cable subscriptions

Quick Tip

Turn off lights during the day to save on electricity bills.

Quick Tip

Recharge your phone with a prepaid pack you need. Don’t pay extra for unnecessary benefits.

How much do I need to save?

Follow the 50 : 30 : 20 rule of thumb to divide your income into expenses and savings.
Always have an emergency fund.

What is the 50 : 30 : 20 rule of thumb for saving?

*U.S. Sen. Elizabeth Warren popularized the 50/20/30 budget rule in her book, All Your Worth: The Ultimate Lifetime Money Plan

Reserve 50% of income for mandatory expenses such as rent, groceries, gas, electricity bills etc.
Keep aside a minimum of 20% of your income as savings.
Allot 30% or less for non-mandatory expenses like going out to movies, eating out, going on trips, buying decorative items for the house, etc.

What is an emergency fund?

It is a good practice to keep aside six months’ worth of your mandatory expenses as emergency funds.
If there is a financial crisis in the future, this money would be useful to buy essentials.
It is always good to be prepared for emergencies than to borrow money.

To track your progress