Plan your savings smartly by building the habit of saving regularly. This brings to budgeting your salary in such a way that you can achieve specific types of goals. Goals can be for kids’ education, purchasing home, or financial freedom.
Let’s break down a practical, easy-to-follow savings approach that can work for almost anyone.
💰 Save 20–30% of Your Income
Start with a simple rule: Save at least 20–30% of your monthly salary. This sets a strong foundation for building wealth, preparing for emergencies, and achieving future goals. The key is consistency—treat your savings like a fixed expense, not an afterthought.
📊 Divide Your Savings: Short, Medium & Long Term
Now that you’re saving a portion of your income, the next step is smart allocation. Don’t let your savings sit idle—give them a purpose.
Split your savings into three buckets:
- Short-term
- Medium-term
- Long-term
A good starting point is to allocate 33% to each, but this can be adjusted depending on your goals. For example, if you have a big purchase coming up in the next year, you might increase your short-term allocation.
⏳ Understanding the Three Types of Savings
✅ Short-Term Savings (Within 1 Year)
These are funds you might need quickly—for emergencies, upcoming travel, or small purchases.
Where to park it:
- Fixed Deposits (FDs)
- Recurring Deposits (RDs)
- Short-Term Debt Mutual Funds
These options offer stability, safety, and quick access when needed.
While planning for emergency fund, using below approach can be beneficial
- Its idle to save at least 6 months of your expenses
- Park your one-month expense in the FD, so that when any need arises, this will be easily liquidated
- Park another two months expense in the ultra-short term debt mutual fund, which can be easily liquidated in a day or two after redemption
- The rest can be in put in debt mutual fund
📅 Medium-Term Savings (1 to 3 Years)
This is money you’ll need in the next few years—maybe for a wedding, a car, or an advanced course.
Where to invest:
- A mix of Debt and Equity Mutual Funds
This combination helps balance risk and return. Debt funds offer stability, while equity adds growth potential.
📈 Long-Term Savings (More than 3 Years)
These are your big dreams—retirement, a house, or starting a business.
Where to grow it:
- Equity Mutual Funds
- Direct Stocks (if you understand the market)
- Gold
Equities shine in the long run. They offer higher returns and help beat inflation, but they need time to grow and smooth out volatility.
Examples of short-, mid- and long-term goals can be found here – Goal definitions
🎯 Final Thoughts
Saving money is important—but how you save is even more crucial. A thoughtful savings strategy helps you stay prepared for short-term needs, medium-term goals, and long-term dreams—without stress.
Here’s a quick recap:
- Save 20–30% of your salary.
- Divide it into short, medium, and long-term savings.
- Choose the right financial tools for each timeframe.
- Adjust the ratio based on your personal goals.
With a little planning and discipline, you’ll not only save money—you’ll make your money work for you.
Now that we have seen the above, check out this relevant article which can be of interest to you – Basics of stock market