Several thumb rules offer guidance on how much of your salary should go toward savings. But let’s face it—life today, with rising expenses and bigger lifestyle goals, doesn’t always fit into those rules. So, how can you tailor your savings strategy to meet your personal goals?

Here’s a more practical approach that factors in your income, spending habits, and future ambitions.

The traditional 50/20/30 rule: Why it may no longer work

You’ve likely heard of the 50/20/30 rule—the idea that 50% of your income should be to cater to necessities, 20% for savings, and 30% for discretionary spending.

It’s simple, but not always feasible. Why?

Inflation, lifestyle aspirations, and loans eat into your income much faster today than they did a few decades ago.

Gaurav Goel, Entrepreneur and SEBI-registered investment advisor, points out that many struggle to save 20% of their salary due to several reasons. One major factor is the aspirational lifestyle that people want to maintain.

The continuous influence of social media and advertisements encourages spending on luxury items—often beyond what the 50/20/30 rule suggests.

Consider someone earning ₹50,000 a month.

After rent, EMIs, groceries, and utilities, they might only have ₹10,000 left.

Saving ₹10,000 out of ₹50,000 sounds easy on paper, but what if they also desire the latest iPhone, priced at ₹1.20 lakh?

The temptation to use EMI schemes and purchase them immediately is strong, but this could damage long-term financial security.

Practical savings strategies with examples

If you’re earning ₹50,000 monthly and aim to save for an iPhone worth ₹1.20 lakh in the next year, here’s how you could allocate your income.

Let’s break it down:

Necessities (50%): ₹25,000 for rent, groceries, utilities, etc.

Discretionary spending (30%): ₹15,000 for entertainment, dining out, etc.

Savings (20%): ₹10,000

At first glance, ₹10,000 per month in savings seems achievable. But what if you’re already paying ₹5,000 on a personal loan EMI and another ₹10,000 on rent?

That leaves you with just ₹20,000 for all your expenses, which means saving a strict 20% becomes difficult without making sacrifices.

One solution could be to prioritise.

According to Harsh Gahlaut, Co-founder and CEO of FinEdge, “It is crucial to follow the principle of ‘Save first, spend later.’ While it’s okay to aspire to luxuries, a smart person would always save and accrue money before buying.”

So instead of jumping into an EMI scheme, you could save ₹5,000 per month specifically for your iPhone, while continuing to invest in long-term financial goals.

In this case, after covering your necessities and existing EMIs, you might allocate:

• ₹5,000 towards short-term savings (your iPhone)
• ₹5,000 towards long-term savings (retirement, emergency fund, or future investments)

Balancing aspirations and priorities

It’s not just about making sacrifices; it’s about finding a balance.

If buying an iPhone is important to you, then perhaps you scale back on other discretionary expenses like dining out or vacations for a few months.

Goel emphasises that this doesn’t mean completely giving up on your desires. “You should plan carefully, prioritising needs like health, education, and long-term security, while still setting aside something for your luxuries.”

For someone earning ₹50,000, this might mean reducing unnecessary expenses like a vacation or frequent online shopping sprees to save for that iPhone over 12-18 months.

Investing in your financial future: A step-by-step approach

Step 1: Identify your goals. Start by setting both short-term and long-term financial goals. Do you want to buy a house? Save for a child’s education? Or retire early? By clearly defining these, you can plan your savings around what’s most important to you.

Step 2: Calculate your savings need. Let’s say you want to buy a house worth ₹50 lakh, and the required down payment is 20% (₹10 lakh). If you have five years to save for that down payment, you need to save approximately ₹16,667 per month (excluding interest or investment returns).

If you’re earning ₹1 lakh per month and saving according to the 50/20/30 rule, you’ll have ₹20,000 to save.

However, if rent and EMI payments consume a large portion of your salary, you’ll need to adjust. Perhaps you reduce discretionary spending or find ways to increase your income, like taking on a side hustle.

Step 3: Automate your savings. Gahlaut recommends automating savings, so a fixed portion of your salary goes into investments or a savings account before you even see it.

Start small if needed—₹500 invested monthly in a mutual fund can grow over time thanks to compounding.

More practical financial ratios

Harsh Gahlaut highlights the importance of financial health ratios.

Understanding your reserve-to-surplus ratio will show how much of your net income is left after covering essential expenses.

Meanwhile, your saving-to-surplus ratio tells you how much of that surplus is being saved.

A good target is to save at least 75% of your surplus income, which puts you on the path to financial freedom. For example, if you have ₹20,000 left after covering rent and bills, aim to save ₹15,000 of that. This makes sure that your short-term luxuries don’t interfere with long-term security.

The bottom line

So, you should start small, be consistent with savings, make use of financial ratios, and ensure your long-term goals are never compromised for short-term desires.

Remember, it’s not about following a rigid formula—it’s about creating a plan that works for you.