How much of your salary should you actually save?

Most personal finance articles in India tell you to save 20% of your income. That is a reasonable place to start and a poor place to stop. It ignores the two things that decide whether you end up comfortable: when you started, and what you are saving towards.

Why one number cannot work for everyone

Take a 24-year-old earning ₹6 lakh with no dependants, and a 38-year-old earning ₹30 lakh with two children and an ageing parent. They are solving different problems. The 24-year-old has three decades of compounding ahead and very little to protect, while the 38-year-old has a fraction of that time and a family relying on the plan.

Saving 20% would leave the first person comfortable and the second person short. What you are aiming for is a specific amount by a specific date. The savings rate is the lever you adjust to get there.

Work backwards from your goal

Decide what you need and by when, then calculate the monthly contribution that closes the gap at a realistic rate of return. Our SIP calculator works in both directions. It projects what a monthly amount grows into, and it tells you the monthly amount needed to reach a target you set.

Two adjustments keep the result realistic. First, assume a conservative return, one you would be unhappy to fall short of. Second, adjust for inflation, so your target is in today's money and not in rupees that will buy less by the time you get there.

A rough ladder to start from

• In your twenties: 15 to 20% is usually enough, because time does most of the work. At this stage the habit matters more than the amount.
• In your thirties: 20 to 30%. Income usually rises fastest in this decade, and so do commitments. The gap between the two is where wealth gets built or lost.
• Starting in your forties: 30% or more, and accept that some goals may need to move. A late start is recoverable, as long as your plan is based on the years you have left.

Treat these as figures to test against your own situation. If your number comes out below the ladder and your goals are fully funded, you are fine.

Count the saving you are already doing

Most salaried Indians save more than they think. Your EPF contribution counts. So does the principal portion of your home loan EMI, which builds equity in an asset, unlike the interest you pay for using the bank's money. An insurance policy with a maturity value also counts, though it is usually an expensive way to save.

Add all of this up before deciding you are behind. Then look at what is left: the discretionary saving you choose to make each month. That is the part you can change, so that is the one to measure.

Get the order right first

Before you raise your savings rate, check what that money would otherwise be doing. Paying off a credit card charging 40% annualised beats any investment you are likely to find. Building an emergency fund comes before investing too. Without one, the next unplanned expense gets paid by selling investments at whatever price the market is offering.

Putting money into a portfolio while carrying expensive debt and no buffer is a common mistake, and a costly one. Clear the debt and build the buffer before you push the percentage higher.

Increase it with every pay rise

The most reliable way to lift your savings rate is to send a fixed share of every raise into savings before it reaches your spending. Your take-home never goes down, so it does not feel like a cut. A step-up SIP does this automatically, and you can model the effect on the SIP calculator. Over long periods, the difference between a flat contribution and one that rises with your income is usually bigger than the difference between a good fund and an average one.

Savings and the rest of your finances

Savings is one of seven things that decide your financial position. A high savings rate with no insurance, or with everything in one asset, still leaves you exposed. Your Financial Health Score scores all seven together, so you can see whether saving more should come next or whether another area needs attention first.