Finance / Financial Planning

Beginners' guide to savings and investments: Budgeting on your first salary

. 7 min read . Written by Priyanka Sutaria
Beginners' guide to savings and investments: Budgeting on your first salary

Small town girl. Big city job. Fresher salary. Adult budget.

After years of being supported by my parents, at the ripe old age of almost-25, I finally have the one thing we are all groomed to achieve since childhood: my first paycheck.

But a salary always comes with strings attached. Strings like rent and food and savings. If you’re struggling with how to make a basic budget planner, work it all out and actually get into the adulting game, then don’t worry. I got you!

In this article, I will show you how to budget your salary, while maintaining a (mostly!) healthy and comfortable lifestyle.

In this series – Beginner’s Guide To Savings And Investments – I will be taking you through the financial plan I have created for myself and my future. From savings to budgeting to investments, this guide will help you understand money basics 101 and why you need a financial plan when you have just started out in your career.

Wondering how to dip your toes into the investment pond? Read this beginner’s guide to investments!

Part 1: Map out your salary

First things first: The most important part of budgeting is knowing what you are earning, and what you spend money on. The best way to do that is to take a sheet of paper and write down your exact monthly salary, followed by listing your fixed expenses. A small but significant budgeting tip for beginners.

What are fixed expenses?

Fixed expenses are those expenses which have to be prioritised, and cannot be compromised on.

The easiest way to understand this is to distinguish your wants from your needs.

What do you need? A roof over your head, and food in your belly.

What do you want? Now this is a bit more complicated.

We all aspire to have a Scrooge McDuck-style swimming pool full of money so that we can dive into it, do a little triumphant backstroke (don’t come at me, I know you want to!), and blow it all up on shopping, entertainment, fancy meals, travel, and so on. But truth be told, financial planning for salaried employees is a must.

Intelligent budgeting will ensure that you give priority to your needs, and curate your wants in a way that doesn’t leave you broke at the end of each month. A common percentage based budget planner is: the 30-30-30-10 budget, which emphasises limiting the wants to a small 10 percent of your total salary. A 30% goes into housing needs, the next 30% into utilities and groceries, the other 30% for any investment needs and only a remaining 10% for spending on wants other than these.

Here’s how I go about it.

My salary is fixed, because I work a full-time office job, as opposed to being a freelancer or an entrepreneur. In order to use my salary intelligently, my first step would be to determine the following using a common salary paycheck calculator:

Is my salary taxable? No.

Do I have a pre-deducted Provident Fund (PF) into which my employer puts a certain amount of my salary before I get the rest in my hand? Yes.

What exactly are the various things you have to spend on? For me, fixed expenses include rent, utilities, and sustenance.

Then I move forward with creating a budget.

How to budget your salary monthly?

So if we were to take ₹10000 as a mock salary for the purposes of this article, then here is how I would split it to cover my fixed expenses:

Rent would be ₹4472, or 44% of my salary.

Utilities would be ₹1482, or 14% of my salary.

Sustenance – which includes food, toiletries, et al – would be a standard ₹1500, or 15% of my salary.

This will add up to ₹7454 or almost 75% of my salary. That leaves a cool ₹2546, or 25% of my salary, which I further split into savings (15%, or ₹1500)  and wants (10%, or ₹1000). This ensures that I lead a balanced financial lifestyle.

As for those people who do not have a PF, and/or have a taxable income, it would be necessary to factor those costs in before looking into your fixed needs.

Part 2: Prioritise the expenses that matter most

Mumbai is by far the most expensive city in the country. For example, someone living in Pune might spend less than 30% of their salary on rent, as opposed to my 44%.

Having lived here for a year before, I am well aware of all different directions in which my bank account is being pulled. Not to mention the other ways in which you are made to feel financially unstable: all the haggling with brokers and landlords, figuring out why the electricity bill is so high, wondering about the arbitrary rise and fall of vegetable prices. All of this can make you feel adrift in the sea of adulthood!

Having to grapple with these additional monetary damages also means that you will save less overall, which is why creating a priority list is the best way to keep things on track.

What to prioritise in a monthly budget

Budgeting is the first step to a good financial plan, but what is most important in the long term is maintaining your budget. For that, you need to get your priorities straight!

I like to prioritise home and food over everything. That sum (₹5954, or 59% of my salary) is always put aside immediately, so that I do not have to worry about them later. Similarly, the 15% marked for savings is also immediately transferred to another account, so that I don’t end up splurging on unnecessary luxuries. It’s one of the best ways to budget in India.

Your salary also should be sustained in such a way that you don’t struggle to feed yourself in the last ten days of the month. My trick? Once I have paid my rent and utilities (more on that below), I do not use the pool of money for sustenance in a daily or monthly format.

I find that a weekly budget is the most cost-effective way to make sure you have food money through the month. This is how you save money from your salary.

Stagger your salary on a weekly basis so that you don’t end up eating just cereal and bananas for all meals!

Making the most of disposable income

As for the disposable 10% in my income: I like to invest it in the entertainment or luxuries I really want. Is there a posh restaurant I have wanted to try? Or a dress I really want? Only then will I spend that money, otherwise it goes into savings!

I also usually wait till the end of the month to make ‘entertainment’ purchases.

There are various reasons for this. One is that I might want to use it for a medical or travel emergency. Another is that I am most likely to consider my decision to splurge, instead of making an impulse decision. One other reason is exigencies, like a gadget or an appliance failing, which when replaced might make a huge dent in my savings.

I also try to reward myself for making good financial, professional, or personal decisions. Saved ₹500 on food this month? Half goes to savings, and half to a movie ticket, or a pair of earrings I really like. Had a really invigorating therapy session? I’ll buy that notebook I’ve been eyeing.

For me, prioritising is not just about giving attention to what is important; it is about distributing attention in a way that each task gets exactly the amount it needs. Budgeting your first salary in accord with your priorities will align your short and long term goals with your vision for the future.

It can transform something as banal as budgeting into a rewarding experience because it will ensure that you have the right balance of wants and needs. Plus, it’s tailored to your individual lifestyle!

Saving on a tight budget

Meal planning

Instead of ordering in every day, making an attempt to cook at least one meal a day can really make an impact on your sustenance budget. I have found that the amount I spend on one meal out can feed me for at least three days if I cook at home.

Bulk grocery shopping

One big saving tip is to buy sustenance in bulk. It might mean sacrificing entertainment costs for one month, but it will add up to less expenditure over time. Trust me, spending ₹1000 once every three months is better than ₹1000 every single month.

From atta and rice, to shampoo and menstrual products; bulk shopping saves huge amounts of money for me.

Making lifestyle changes

Small changes in what we purchase can make a huge difference! My lifestyle changes include buying soap instead of body wash, a train/bus pass instead of daily tickets, and a good phone plan.

All of these little things can really add up in the long term. Try figuring out where you are spending more money than you should be, and redirect it towards savings.

Adulting is truly difficult because we are rarely trained for independence in India. We do not learn about keeping ourselves alive, on our own, at home or in school. In the end, it is up to us. But learning the art of budgeting your first salary is crucial.

So make the most of your fresher salary. Edit your expenses obsessively. Make a financial plan. Your future is yours, and so are your finances!

Do you have any budgeting tips and tricks? Tell us in the comment section!

Updated 17 August 2021