How to Save Money From Salary: 7 Smart Investment Tips

How to Save Money From Salary: 7 Smart Investment Tips


As a salaried individual in India, saving money from monthly income is crucial for securing the financial future. However, with numerous expenses and temptations, it can be challenging to set aside a portion of the salary consistently. In this article, explore how to save money from salary every month and make the most of one's hard-earned income.

1. Effective Budgeting Strategies for Salary Management

The first step towards saving money from salary and building a solid financial foundation is to create a comprehensive budget.

  • Start by listing the monthly income and expenses.
  • Identify areas for cutting back on unnecessary spending and allocate more towards savings and investments.
  • The 50/30/20 rule is an effective budgeting technique, where 50% of income is allocated to essential expenses, 30% to discretionary spending, and 20% to savings and investments. This ensures that a portion of the salary is consistently set aside for one's financial goals.

2. Understanding the Importance of Emergency Funds

An emergency fund is a safety net that can help to navigate unexpected expenses, such as medical emergencies, job loss, or car repairs, without derailing one's financial stability.

Experts recommend saving at least three to six months' worth of living expenses in a separate Savings Account. This way, individuals can access the funds easily when needed without having to dip into their long-term investments or take on high-interest debt.

3. Investing in Low-Risk Investment Options

Explore low-risk best investment options for salaried persons that prioritise stability and aim to minimise potential for loss.

  • Fixed Deposits (FDs) : FDs offer a fixed rate of interest over a specified tenure, making them a secure and predictable investment option.
  • Recurring Deposits (RDs) : RDs enable customers to set a monthly investment amount for a specific period, promoting a consistent savings habit.
  • Public Provident Fund (PPF) : PPF is a government-backed, long-term investment option that offers tax benefits under Section 80C of the Income Tax Act.

4. The Benefits of Retirement Accounts

Investing in the best investment options for salaried persons, like retirement accounts, can help save for retirement while offering tax benefits.

  • NPS : National Pension System (NPS) is a voluntary retirement savings scheme that allows investors to invest in equity, corporate bonds, and government securities. It offers tax deductions of up to ₹1.5 lakh under Section 80CCD(1B).
  • EPF : Employee Provident Fund (EPF) is a mandatory scheme for salaried employees, where both employees and employers contribute 12% of their basic salary. EPF interest is tax-free, and the accumulated corpus can be withdrawn tax-free upon retirement.

5. Diversifying the Investment Portfolio

Diversifying the investment portfolio is crucial for minimising risk and optimising returns. Consider investing in a mix of asset classes like Equity Mutual Funds, Debt Funds, gold, and real estate based on one's risk appetite and financial goals.

  • Equity Mutual Funds invest in company stocks, offering higher returns but higher risk.
  • Debt Funds invest in fixed-income securities, offering stable returns with lower risk.
  • Gold and real estate can act as a hedge against inflation and provide diversification benefits.

6. Utilising Tax-Advantaged Savings Plans

Investing in tax-advantaged savings plans is one of the best investment options for salaried persons, as it can help reduce tax liability and save money.

Investing in tax-advantaged savings plans is one of the best investment options for salaried persons, as it can help reduce tax liability and save money.

Equity-Linked Savings Scheme (ELSS)

ELSS Mutual Funds invest primarily in equities, offering tax deductions of up to ₹1.5 lakh under Section 80C.

Unit-Linked Insurance Plans (ULIPs)

ULIPs combine life insurance coverage with investment in equity and debt instruments, offering tax benefits under Section 80C and Section 10(10D), subject to certain conditions.

National Savings Certificates (NSCs)

NSCs are government-backed savings instruments that offer tax benefits under Section 80C and a fixed interest rate with a five-year investment tenure.

7. Smart Spending Habits to Maximise Savings

Here are some tips on how to save money from salary every month:

  • Avoid impulsive purchases and practise mindful spending.
  • Use cashback Credit Cards and loyalty programs to save on regular expenses.
  • Compare prices and look for discounts before making major purchases.
  • Adopt a minimalist lifestyle and focus on experiences rather than material possessions.
  • Use Credit Cards responsibly and pay Credit Card bills in full and on time every month to avoid high-interest charges.

Setting Financial Goals for Long-Term Success

Finally, setting clear financial goals can help to stay motivated and focused on saving and investing for the long term. Whether one is saving for a down payment on a house, child's education, or retirement, having specific, measurable, achievable, relevant, and time-bound (SMART) goals can guide the financial decisions. Break down long-term goals into smaller, manageable milestones, track the progress regularly, make necessary adjustments, and celebrate achievements along the way.

Final Words

By exploring the best investment options for salaried persons, individuals can embark on a path towards financial prosperity. Remember, investing is a long-term game, and consistency is crucial. Start small, but start today, and watch savings grow over time. Federal Bank offers a wide range of savings and investment products, from high-yield Savings Accounts to Fixed Deposits and Mutual Funds, to help customers achieve their financial goals.