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Have you ever wondered how to save money with a 20,000 salary, with your bills, EMIs, and other expenses waiting for you? If so, you are not alone. While a 20k salary presents challenges, it also encourages smart budgeting and creative ways to manage rising living expenses.
But what if we told you that you can save a small portion of your salary for your future needs and emergency expenses? Yes, whether your salary is 20k or 200k, making minute changes in your spending habits, budgeting techniques, and lifestyle will help start your saving habit.
This guide will walk you through practical methods and strategies to help you manage a ₹20,000 salary effectively while building your savings. Wondering about the best ways to save and invest on a limited income? Don’t worry, we’ve got you covered.
Ready to make every rupee work smarter for you? Here’s how you can make the most of your ₹20,000 salary and turn it into a tool for financial progress instead of a limitation.
People normally think that it is impossible to save money with small salaries. But is it true? Is it possible to save money from a 20,000 salary? Yes. According to financial experts, with methods like the 50/30/20 rule, save-then-spend rule and other strategies, saving money with a 20000 salary is possible.
However, it takes discipline, planning, budgeting, and a little bit of lifestyle changes to achieve this goal. You need to plan your spending, initiate smart investments like mutual funds, PPFs, PFs, and more, cut short unwanted expenses, and more to budget a 20k salary.
Although salaried people might find these changes and strategies a bit difficult at first, in the long run, these savings will be helpful in maintaining emergency funds and additional savings. Interestingly, Gen Z and millennials are slowly picking up these habits, turning into budget-conscious individuals.
In the coming sections, let us discuss the different savings strategies, investment plans, and budgeting methods that help make saving money from your salary more effortless.
Identifying and categorising your monthly expenses and spending are essential to improving your savings. This helps you recognise where you might be overspending and identify unnecessary costs that can be trimmed or avoided altogether.
Once these expenses are identified and your spending is categorised, you can better strategise budgeting methods like the 50/30/20 rule and the save-then-spend rule.
Here are some points that will help you identify and categorise your spending.
Keeping track of all your expenses is essential to identifying and managing your spending and savings. Keep a diary or a mobile application to note down all your expenses. Include everything, including the small expenses like buying a snack or recharging your mobile phone.
Splitting the expenses into needs, wants, and investments will help improve your savings strategies. Through this method, you can identify your unavoidable as well as unnecessary expenses and manage them accordingly.
Set limits for every expense, like needs, wants, and savings, and stick to those limits. You can make use of money management apps like Mint, You Need a Budget (YNAB), Money Tracker, and more to easily set and manage spending limits.
Moreover, if you are a credit card user, limit yourself from using them extensively. Additionally, ensure that you pay off the credit card debts on time to avoid interest.
Once you set spending limits, split expenses into different categories, and track every expense, you will be able to identify your unnecessary expenses. So, continuously evaluate these factors on a weekly and daily basis to identify your spending and curb impulsive spending habits.
The 50/30/20 rule is the most beneficial budgeting method you need to know for effective money saving. This widely used method makes saving easier by dividing expenses into three categories: needs, wants, and savings.
Under this approach, an individual’s post-tax income is allocated as 50% for essential needs, 30% for personal wants, and 20% for savings.
No matter what the salary of an individual is, experts suggest that following this rule will help effectively save money for the future.
However, what are these needs, wants, and savings? Let us break this concept down into more detail.
This rule suggests keeping 50% of your salary for your needs. These needs include the unavoidable expenses in a person’s life. Some of these expenses include:
So, if your salary is 20,000, according to the 50/30/20 rule, you can use 10,000 for your needs. The rest 10,000 will go for other expenses and savings.
The next category is for the wants. While needs are the unavoidable expenses in a person’s life, wants are add-ons that improve the lifestyle of an individual. This can be engaging in your favourite hobby, going to a movie, and more.
These are activities or expenses that we need in life. However, they are not essential or unavoidable. According to the 50/30/20 rule, 30% of the salary or after-tax income can be devoted to these wants.
So, a person who has a monthly salary of 20,000 can use 30% of it, which means 6000 per month for the additional expenses. From this amount, a small amount can also be used for cheat spending, which can be used to treat yourself occasionally.
Some of the major wants can include:
The last 20% of your salary should be used for savings or investments. According to expert opinion, an individual should have at least 3 months or more of emergency savings. This will help them manage any unexpected financial needs like medical expenses, car or house maintenance, and more.
Moreover, these savings will also help achieve major goals like buying a house or a dream vehicle in the long run. So, individuals should invest in savings instruments like mutual funds, fixed deposits, digital gold, Unit-Linked Insurance Plans (ULIP), and others to improve savings.
So, if your monthly salary is 20,000, you should save 4000 a month, according to the 50/30/20 rule.
However, sticking to this rule might not always be possible. Considering the living expenses and other needs, especially in metropolitan cities, people might have to make slight adjustments in this rule, making it a 60/20/10 or something else, based on the expenses and emergencies.
Before getting into the details of the various investment plans, let us have a quick look at ways you can reduce spending and save your money.
We have already discussed the 50/30/20 rule and the necessity to save 20% of your salary. But how do you actually set aside this money, and where should you keep it? This part will address those questions and provide you with clear guidance. Here, we will discuss some prominent savings plans that you can adopt based on your available capital and risk tolerance capacity.
Mutual funds are a good savings option for investors. Here, money is pooled from different investors and invested in securities like equities and bonds.
Mutual funds are of different types, such as
Have you heard of SIP? SIP, or Systematic Investment Plan, is a method for investing in mutual funds at predetermined time intervals. According to this plan, an investor can choose a specific mutual fund scheme and invest in it automatically, preferably every month.
The major benefit of SIP is that investors can begin their investment with as little as Rs. 500 in most cases. This plan does not require huge amounts or lump sum investments. So rather than investing in mutual funds with a huge one-time investment, people can opt for small amounts at regular intervals, offering a higher return.
A savings plan available in different forms like perpetual SIP, flexible SIP, and top-up SIP, this program makes investors more disciplined, offers compounding benefits, and many more. However, although a relatively safe investment option, SIP is also subject to market risks, volatility, and underperformance of selected mutual funds. Therefore, ensure that you select funds that match your risk appetite.
Public Provident Fund, or PPF, is yet another investment plan that allows long-term investments with small investments at fixed intervals. This is one of the most common investment plans chosen by individuals who seek high yields in a better and safer way.
Once a PPF account is opened, investments will be made at regular intervals, and the interest will be compounded. This method is considered comparatively safe, as it is mandated by the government, offering guaranteed returns.
Additionally, investing in a PPF offers tax advantages under Section 80C, with a minimum contribution of Rs. 500 per financial year and an annual limit of Rs. 1.5 lakh. However, investors should look for potential risks like changes in government policies. Limited liquidity, lower returns compared to market-linked investments.
Fixed deposits (FDs) are commonly viewed as among the safest choices for investing. Here, people begin an FD account in banks or financial institutions, where they deposit a specific amount of money for a predetermined tenure.
Investors receive a fixed rate of interest on their invested principal. However, this interest will not change over the period, and hence the interest rates of different banks should be compared before finalising the platform for investing.
RDs, or recurring deposits, are similar investment options to those of FDs. They are also small investments made for a fixed time frame with monthly or predetermined investments. Once the determined time frame ends, the investors will get the invested money and its compound interest.
Recurring Deposits (RDs) typically offer higher interest rates than Fixed Deposits (FDs) and come with more flexible terms regarding tenure and investment limits. Moreover, RDs have more liquidity, and investors can withdraw their investments before completing the tenure with minimal to no penalties.
Unit Linked Insurance Plan (ULIP) is an investment plan that offers dual benefits. It serves as insurance and an investment by providing life coverage as well as the benefits of investing in the stock market or debt funds.
The payments made on ULIP are split into two parts, where one goes to life insurance and the other to the investment in mutual funds like equity, debt, or hybrid. This plan allows investors to switch between the investments, helping them gain the best ULIP plans.
Although ULIP is flexible and offers various benefits, it has a lock-in period of five years, during which the investors are not allowed to make any withdrawals. Moreover, this plan is also subject to market volatility, additional charges, and lower death benefits compared to term insurance.
Moreover, people with a 20,000 salary might at times face difficulties in maintaining ULIP due to its lock-in period and charges. So, they can also opt for term insurance and mutual fund SIPs over ULIP.
A Certificate of Deposit (CD) is an additional savings vehicle that individuals can utilise. It functions as a savings account where you can deposit money and earn interest on your funds.
Unlike standard savings accounts, CDs have specific restrictions, including limited flexibility. The investments made through this plan cannot be withdrawn before completing the tenure, as it will cause penalties. Moreover, this is widely used in foreign countries.
Another option to consider besides CDs is a high-yield savings account, a widely used Indian alternative. As the name implies, this scheme offers a greater interest return on your investment. However, these accounts demand a huge initial investment.
Offered by the Pension Fund Regulatory and Development Authority (PFRDA), the National Pension System is a good savings option for those with a budget of 20k salary. With this investment option, individuals can make systematic investments with their salary, focusing on their retirement life, which helps build a retirement corpus.
Any Indian between the ages of 18 and 70 can invest in NPS. linked with the market, this plan is a voluntary scheme that offers tax benefits. Moreover, NPS is flexible and can be managed from anywhere in India, even after changing jobs or locations.
Now, you might be clear that investments need not be huge to begin a savings plan. Even an Rs. 20,000 salary is good enough to start saving for the long run. However, in order to have monthly savings, it is important that you follow a disciplined budget plan by cutting off unnecessary expenses.
Along with following the 50/30/20 rule, the save-then-spend rule will also help individuals develop a good saving habit. However, if you are still in doubt about the investment plans and strategies you can adopt to improve your savings from your 20,000 salary, you can seek help from experts and financial managers.
Several identified platforms, like Finquo Versity, offer guidance and assistance in financial management and budget planning. The various courses, webinars, and discussions provided by these platforms will help you increase your financial literacy and, in turn, make the maximum savings from your salary, no matter how big or small it is.
So far, we have discussed a whole lot of things, from budgeting to saving and investing. We hope that this blog has helped you identify the important points that help you identify your expenses, cut short the unnecessary ones, and know what to look for while investing.
Moreover, we have already elaborated on the 50/30/20 rule and the various investment plans that anyone, whether they are a salaried individual, a youth, the Indian middle class, or a millennial, can follow. Furthermore, you can also consider diversifying your investments by investing in digital gold and other latest options.
So, although the question of how to save money with a 20,000 salary might loom in your mind as a challenging task, with the right planning, mindset, and disciplined approach, you can make your savings plan and long-term goals possible. Therefore, start small but engage in smart investments with the right tools, expert advice, and an attention to detail.
Uma Nair
Uma Nair is a professional content writer with over 3 years of experience and a strong foundation in crafting engaging and informative content across diverse domains. Over the years, she has dealt with various niches, and her growing interest in finance has led her to explore the world of financial writing. As an English Language and Literature postgraduate, her educational background supports her ability to convey complex topics in easy and accessible content. In her free time, she stays updated on industry trends to continually enhance the value of her content.
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Ibnujala
Ibnujala is a seasoned financial expert of Indian and Middle Eastern markets with an experience of over 15 years. His deep interest in neuroscience fuels his research in seamlessly blending finance and science. With a bachelor’s degree in law from India and an MBA from the UK, his diverse academic background makes him an expert in financial management and mentorship. In addition to being a seasoned investor and serial entrepreneur, he currently serves as the CEO of Finquo Versity.
Disclaimer: The information provided in this blog is for educational and informational purposes only and should not be considered as financial or investment advice. Stock market investments are subject to market risks, and past performance is not indicative of future results. Readers are encouraged to do their own research and consult with a licensed financial advisor before making any investment decisions. The author and publisher are not liable for any financial losses or damages incurred from following the information provided in this blog.
Uma Nair
