Planning and Rationalizing the Spending of Salary Expenses

Planning and Rationalizing the Spending of Salary Expenses

Everyone loves that day of the month when they hear the sweet chime of their phone’s massage tone informing them of their salary being credited in bank account. However, the important task of spending that credited amount responsibly, starts after the credit.

Let us try to understand why most people usually fails to keep their discretionary expenses in check and spends more then their budgeted amount.

Importance of budgeting of salary

A person typically has few regular fixed expenses such as EMIs of Home, Car or Personal loan against their monthly salary. However, it is recommended to not overspend in buying these items and budget prudently while trying not to allocate more than 50 percent part of their salary against these fixed EMIs so that they could have sufficient funds to handle any future emergencies.

Save before you spend

People usually spend first and then think about saving, which is a wrong practice and often leads to insufficient savings at the time of any emergency. It is recommended to keep aside a minimum amount of 30 percent of their salaries towards savings first and then spend the remaining part in order to meet these emergency funds requirement.

Start early

Starting early is the one of the most underrated concepts in a person’s financial journey, while usually people ignore its importance and think that they don’t have enough money, or they are quite young and have ample time to start investing in later parts of their career. It could not be stressed enough that an individual should start investing as early as possible even with Rs 500/- per month to let the magic of compounding take its place.

Create an emergency fund kitty

It is highly recommended to have provision of at least 6 months of your regular monthly expenses as an emergency fund which should be invested in liquid form in order to be able to withdraw it within a short span of time.

Create asset not liability

Robert Kiyosaki in his famous book “Rich Dad Poor Dad” stated that a person should always looks to create income generating asset such as dividends from bonds, shares etc. or intellectual properties like books, articles etc. which could generate royalty to the person.

On the other hand, he recommends avoiding creating liabilities that spends money out of your monthly expenses. Such as cars, unnecessary costly vacations, clothes, eating out, unused subscriptions of OTT platforms etc.

Create a passive income stream

A person who solely survives on his or her salary alone are typically not be able to create enough savings, that’s why it is recommended to generate a passive stream of income apart from your fixed monthly salary to augment the amount of savings to achieve true financial independence.

Make a separate list of short- & long-term financial goals

It is advisable to differentiate and categorize all your upcoming future goals between short- & long-term goals and plan your savings accordingly. Examples of short-term goals could be buying car or going out for the vacation and examples of long-term goals could be saving for your child education or their marriage.

Funds saved for long term which has long time horizon could be invested in risky asset class such as equity, Equity linked Mutual funds and Crypto currencies, however regulations around Crypto markets are not clear yet and sufficient precautions needs to be taken before investing in Crypto assets which has an inherent nature of being quite volatile as of now.

However, for the short-term goals it is advisable to avoid investing in riskier assets and invest in fixed income assets such as fixed coupon bonds or fixed deposits instead.

Create a nest egg for your retirement

People often don’t like to think about their old age and ignores saving for their retirement. However, these are the most demanding years in the terms of requirement of funds on account of medical emergencies etc. due to old age and on top of that their monthly salary incomes are also stopped because of their retirement. Due to this ignorance and unavailability of sufficient nest egg many people are forced to work even after their retirements.


While it is important to enjoy your life and indulge in discretionary expenses occasionally.

It is necessary to budget prudently and never lose sight of our financial goals and keep a track and try maximizing your savings in order to enjoy your later years peacefully without any worries of insufficient nest egg.


The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. City Credit Management LLP is not liable for any decision arising out of the use of this information.

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