Answer this Honestly . Don’t rush , think about it and then answer this very important question . If you get a salary cut of 10% and you have to live with 90% of your salary , how will it affect you ? In this article we will see some important insight on spending habit and psychological issues .
Most of the people do not save anything at the end of the month and the biggest reason is that they are not left with anything (as they say) . “Supply creates its own demand” , This applies to Personal spending also . when we have money in our hand we will come up with all the reasons why we have expenses and why we cant with any money less than that . Answer these following questions .
If you get a salary cut by 10% , will you be able to
- Pay your Rent
- Meet all the household expenses
- Pay your children fees
- Spend on all the important things like Entertainment , eating out , occasional
splurging etc etc .
I can bet that most of you will have answer in YES !! . If people control and prioritize their spending , It totally possible to live in 90% of salary. Just close your eyes and imagine a situation that you are now earning just 90% of your regular salary . Small savings can make up large chunk of investments . If you try to answer the above questions , the answer would be a YES for almost all of you . There can be some exceptions , but i am talking about majority .
For some people , they may require cutting on totally useless stuff and reducing expenses on something which can/should be reduced . Some of the examples are
- If you see go out 5-6 times a month , reduce it to 3-4
- If you see 5 movies a month , reduce it to 4
- Anything where you can do with less spending .
Does saving 10% means that you start living a Frugal life
Please understand that Saving money does not mean depriving yourself . The only thing i am saying is We Indians especially in Metro cities have slowly started going the American Way, ie. Spending more than what they can earn. From last couple of years , we are using to much of credit cards in wrong way .
We are a nation which saves but do not invest properly , and now we Indians have started spending like never before . Spending is good , Spending on useless stuff or stuff we can do without can be like cancer . It will not hurt you immediately , but kill you some day .
Now after you have realised that we can really live with 90% of our salary , what can we do with it . SAVE IT !! , what else . I believe (and i can prove) that saving 10% of your salary is only what you need to do to achieve all your goals in Future , provided you Start Early and Have realistic goals .
A person who is 25 yrs old and earning 40,000 per month if saves 10% will his retirement(60 yrs) would be having anywhere from 2.3 crores to 6 crores if he earns anywhere from 12%-16% in long term which is totally acceptable . See how to calculate this in this video .
What to do ?
Next time you get your salary , take 10% out of it and deposit it in some other bank account . Just try to see if you can do with 90% of your salary . I bet you can do it . Saving 10% of your salary can have drastic effect on your investments . You can create nice wealth using Equity in long term .
One of the readers Ramjee comment is worth notice . Please see his comment .
That was on the bulls eye. A little bit of decrease will not effect lifestyle much, but has a lasting impact on your wealth. I have an automated schedule put to transfer 15% of my salary (a fixed amount every month,which is revised if sal.changes) to another account. at end of 6months it feels good to see the lump sum which can go in for further investments. “What he did is worth appreciation . I hope people learn from him .
Conclusion
We dont save because we think we cant save . Whereas if you try its totally possible . Just to try do this next month
- When you get your salary , take 10% out of it and deposit it in some other account and try to live with 90% of your salary , see what all your are missing and if you are facing some difficulty or not .
To see more tips on savings and spending , you can refer to Ramit Sethi’s blog .
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{ 41 comments… read them below or add one }
I would agree with you. And I'm just gonna try this in the coming months.
Thanks for the useful post.
@Nimal
You are worth appreciation for accepting that this is possible . I am sure you can do it and save good part of your salary
Btw , Do you see people or families where its possible ?
Manish
//when we have money in our hand we will come up with all the reasons why we have expenses and why we cant with any money less than that//
Very true..
Worth article, keep up the good work and write more useful posts.
@Ramana
I am glad you liked the article . So i found someone who agrees with that sentence . nice
manish
Manish,
Great article. And my answer to your question is, Yes, I can live with 90% of my take home pay. In fact, I can comfortably live with 70% of my pay. I'm doing this and am saving at least 30% of my takehome pay
I am agree with u but how could anybody save when companies are applying rule of 25% variable pay. In current inflation rate it is not possible for everyone specially in metro city to survive with only 75% of salary with savings.
@Prasanth : Great
@Raj : I did not understand you point well .. can you be more clear .
Manish
That was on the bulls eye. A little bit of decrease will not effect lifestyle much, but has a lasting impact on your wealth. I have an automated schedule put to transfer 15% of my salary (a fixed amount every month,which is revised if sal.changes) to another account. at end of 6months it feels good to see the lump sum which can go in for further investments.
@Ramjee
Thats incredible
. You are the hero of this thread . I am adding your comment on the article itself .
I am sure this kind of action will significantly affect savings of individuals . Nice job . Hope people learn from you .
Manish
Very nice and useful post.
I have been doing something like that since last 2 year.
I opened a Flexi RD account for 1 year in bank, i transfer nearly 10% of my salary to this account, The RD installments being flexible, i can choose to deposit more or less as per my requirements.
@Zindagi
Great !!
I would recommend starting a SIP rather than RD incase you dont need money in short term .
What do you think ?
Manish
Well thats a great idea too, was planning to do that from this month.
Neways just wanted to thank you for such nice posts.
Great work
@Zindagi
I would recommend going for SIP at this point , as its a nice time for equity markets for long term . Just make sure that you also take out money from your RD's as either pay of any loans if you have or utilize it in some other better paying thing like Liquid funds or PPF etc .
manish
Awesome!!!! You have put up your thoughts very cleanly and with good justification.
@nids .. Nice to have you here at jagoinvestor ..
Thanks for the comment . Keep visiting .
Manish
Thanks Manish for putting my earlier comments on the post. It needs a lot of discipline not to take money out of the said account. It took me about an year to get into this habit.
@Ramjee
Its fine , if the cost of being disciplined is 1 yr , then everyone should pay the price
Manish
Really Thax… Good post
Hey Manish
Thanks for posting it. will give a try.
-Pradeep
Hi manish – a nice article and I want to leave a link to this article in my blog – will wait for your reply before I do it.
My blog is http://learnandteachstocks.blogspot.com/
I accept with your overall concept.
Only concern is with the return percent of 16% overall that too over 35 years.
Rest i do agree with your savings concept and power of compounding
@Anonymous
What do you think is the accepted rate of return from Equity over long term .. My assumption of 16% is because
- Historical performance (17% +)
- Assuming an annual review of investments and deletion and addition of Stocks or Mutual funds whatever invest in .
Manish
Hi All,
Mutual Funds like HDFC Top 200 have given 25 % Compounded Return since last 14 years. And 18 % per ann in last 3 years of turmoil.
So put in only the 5 star rated once. I personally loook up to valueresearchonline.com for the 5 star diversified funds only.
Hope you find this useful. Happy Saving AND Investing
Regards,
Rajesh
Rajesh
Yup , 5 star funds are mostly good . The additional checks which should be done is the suitability for youself .
Manish
"Spending on useless stuff or stuff we can do without can be like cancer . It will not hurt you immediately , but kill you some day ." ,
Very Well Said Manish..
And a nice article.. trivial yet powerful..
I am going to forward this article to all my friends..
Keep up the Good work..
~Madhab
@Madhab
Great …
Thanks for your involvement
Manish
I am planning on returning back to India for work after being for 9 years in US. I am an avid reader of financial planning related websites here and was looking for something good that is more India centric. I like you articles and they resonate well with me. I am going to spend a fair bit of time going over the past articles now. Glad I stumbled into this site.
Thank you.
Sure , you should go through http://www.jagoinvestor.com/archives section
Manish
Hey man!
i m living on a 85% pay cut since last 18 months (and no, it is not a typing error…)!
eeerrrgghhh…. recession!
any magic tricks for me!
.-= Azad´s last blog ..25 years of poison… Bhopal =-.
oops .. 85% salary cut is a tough thing .. were you a pilot or what ? what job are you in ?///////
Manish
Haan bhaijaan…
Nice guess!
Pilot hi hoon… Recession me buri tarah se fasa hua hoon..!!
Lets hope for d best..!
.-= Azad´s last blog ..25 years of poison… Bhopal =-.
Great article Manish. Truth is Bitter
)
Gopal
Thanks
Hi Manish..
My name is Khushboo. I am a Management student and planning to take majors in finance. I am very Good with numbers but a little weak in current knowledge of Finance, I really like your Blog.its Really helpful.
But is their anything specific that you would like to suggest to enhance My knowledge of Finance…
Khusboo
What do you mean by you are good at numbers ? No certification like CFP or CFA would require that much of love for numbers, but you can do a lot by researching and using statistical methods in financial products .
Manish
I cant be rich by saving…I cant save more than my paycheck. Have to MAKE more money
Murali
Yea may be . Some people situation does not allow that , so you should look at increasing income .
Manish
hi manish,
wanna know how to learn more about the same .
i have already subscribed to your RSS and invest regularly in LIC Ulip . I know i have made one mistake by investing in ULIP instead of not investing in SIP. but whatever has happened, has happened and cannot be changed . i am investing around 60000 in this policy per annum and two years have completed (for 20 years, invetment for 5 years). i am also investing in shares but not regularly its like as soon as i find the shares are falling i buy some and as soon as some shares rise i sell them keeping a interest rate of around 7-8 percent on these shares . but i want to know how can i do better investing . i am 24 and want to make lots of money when retire . but i also want to know about futures and options . i know they are really risky but the thing which is luring me is the amount of return they give
Dhruv
You can learn about options and futures from many ebooks on the net. Also you can read about them on net , just search about it . NCFM module material is also available on net . I would like to warn you on F&O , you might hear 1000% return and money doubling in a day , but all I can say is control your self and dont try to much of it . I have been through that phase . Start small . Grow gradually .
Manish
Here is another step one can add after you put aside the 10% at the begining of the month. Just transfer the amount that you have at the month end out of your salary account, no matter however small the amount and try to increase this amount next month. I am sure after reading Manish’s articles you will certainly left with some amount in your accounts
Ajay ‘
Nice point . As salary increases the savings should also increase .
Manish
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