Tips to save money when you have a low income
When income is low, the ability to save is also limited. For savers like Nitin, tax-saving instruments under Section 80C may be the primary way to accumulate savings. However, trying to save about 20% of his income is an ambitious target for a young earner with a family to support. It’s common for young investors with low incomes to find that expenses quickly consume their earnings.
Nitin should first evaluate whether he can routinely save 20% of his income each month to determine if this annual saving target is feasible. If, after accounting for lifestyle and other avoidable expenses, mandatory expenses for rent, power, transport, telecom, and similar necessities exceed 80% of his income, his 20% saving target is too high. He should be prepared to pay some taxes until his income and saving ability increase.
If Nitin finds that he can save, but lacks discipline, saving before spending is a better approach than hoping to save after spending. He should set up an electronic clearing service (ECS) mandate in his bank account to ensure that as soon as his salary is credited, money is transferred to a one-year recurring deposit with his bank, his PPF account, and into an SIP in a tax-saving mutual fund. At the end of the year, he can use the RD to pay his insurance premium, and the other two investments will have accumulated. This way, he won’t have to stress about his year-end investments.
To further solidify his financial planning, Nitin should consider consulting a financial adviser to optimise his investment
