How to save money when income is low

How to save money when income is low

• By Staff Writer

Raj is young and earns about Rs 10 lakh a year. He invests only to save taxes. Despite his best intentions, he has not been able to get his tax-saving investments in order. At the end of the year, he is left scrambling for money to pay his insurance premium, keep his PPF account alive and ensure he has completed the Section 80C investments. He also ends up borrowing from friends and relatives to meet the commitments. He needs help with his personal finances so that he is able to manage his saving

When income is low, the ability to save is also less. For someone like Raj, the tax-saving instruments under Section 80C represent perhaps the only way to accumulate investments. But trying to save 20% of one’s income is an ambitious target for a young earner. It is typical for young investors with low income to find that expenses can quickly accumulate to consume the income.

Raj should first evaluate whether he is able to save 20% of his income on a routine basis, every month, to figure whether he would be able to meet such a stiff annual saving target. If he finds that even after accounting for lifestyle and other avoidable expenses, if his mandatory expenses for rent, power, transport, telecom, and such come to more than 80% of his income, his 20% saving target is too high. He should be willing to pay off some taxes until his income and saving ability move up.

If he finds that he is able to save, but lacks the discipline, saving before spending is a better approach than hoping to save after spending. Raj should set up an electronic clearing service (ECS) mandate in his bank account and ensure that as soon as his salary is credited, money is transferred to a 1-year recurring deposit with his bank, his PPF account, and into a SIP in a tax saving mutual fund. At the end of the year, he can use the RD  to pay his insurance premium. The other two investments would have accumulated too. He would then not have to stress about his year-end investments