Most finance experts recommend setting aside a percentage of income for savings: anywhere between 30% and 40%. This sum can include fixed deposit instruments and other safer options. Simply put, for salaried individuals, calculating as close to the ideal amount that can be invested is an exact combination of income, expenses, and financial aspirations.
In this blog, we would address the frequently asked questions: “How much can I save from my salary?” and “What is the appropriate amount of investment for a salary earner every month?” . While there’s no one size fits all answer, it’s important to follow the right steps in the allocation of funds between financial growth, lifestyle, and goals.
We will go from discovering the factors which could make you realize your investment ability to concluding with helpful examples serving you a plan favorable to your objectives. Also, stick on to the closing tips for safe investments to create wealth using mutual fund investments!
It is of utmost importance to assess your current situations of finance before deciding on mutual funds investments.
Start with the monthly calculation of your income. This should comprise of salary, freelance earnings, property rent, etc. After determining the income value, take stock of your monthly expenditures, most of which recur as fixed costs (rent, mortgage repayment, utilities, and any existing debt repayment installments).
Take for instance, you earn ₹50,000 a month but spend ₹30,000 on fixed expenses; the remaining amount, which is ₹20,000, is your income surplus. This is the amount that will be available to you for further investment and savings. You may put this surplus, in full or partial, to begin wealth creation!
An investment strategy is clearly formed on the basis of the changing nature of goals and objectives. The goals have a profound effect on the development of the investment strategies: down payment on a house or the child’s education or retirement funds.
In such a situation, short, medium, and long-term goals must be categorized as follows:
Short-term (within a year towards a vacation): These might necessitate conservative investment as lower-risk options.
Medium-term (within five years for a house or an expense): A reasonable ratio of equity to debt funds could be in order.
In case of long-term plans (like retirement), short and long-term plans may be legit, putting money into equity mutual funds with a boosted growth rate.
For example, if you plan to buy a house within five years, balanced funds could be a choice; for retirement, however, you may wish to look at something such as equity funds, which have a much greater upside potential.
For anyone earning an income, the 50:30:20 rule provides a solid foundation for financial planning. This rule particularly applies to providers for the family, as it ensures a long-term financial balance and security. Here’s how it works:
50% for Needs: Half of your income goes toward covering expenses, namely groceries, household rent or EMIs, utilities, and other necessities. These are the non-negotiable, basic necessities of life.
30% for Wants: Allocate 30% toward purchases outside the necessities that can make life better like gym membership, vacations, movie tickets, or streaming services’ subscription fees. These expenses are not crucial but should be minimized when possible.
20% for Savings and Investments: Finally, use the remaining 20% of your income to save. That would allow you to build up an emergency reserve to a minimum of at least three months’ salary. Once this is done, you can approach investment with this portion by indulging in mutual funds.
So by this, you will be building a balanced financial plan. Any amount cut back from your spendings on wants should act as a booster to your investments, which will help you along your path to growing wealth.
Other Resources:
FOIR stands for Fixed Obligations to Income Ratio. This is a practical approach to help you decide how much to set aside for monthly investments . Here are the steps:
Step 1: Note down your total monthly income.
Step 2: Subtract fixed obligations, such as rent, utilities, or EMIs.
Step 3: The remaining amount is your disposable income to be invested after needs-based discretionary spending.
For example, monthly earnings stand at ₹50,000, while fixed expenses are ₹20,000. So your FOIR is 20,000. This implies you have 30,000 left over for discretionary expenditure and investment. After meeting your wants, you can invest the leftover to maximize your financial potential.
FOIR gives you an idea of your financial situation in such a manner that allows you to maintain a balance between expenses and investments.
After setting the investment, your second task will be to mention why exactly you’re investing.
Near-Term Goals: Emergency funds, vacations, and savings for any gadget. Such goals suit debt funds because of the relative safety they offer while maintaining stability in returns.
Long-Term Goals: an equity mutual fund is very much in sync with wealth creation and long-term goals such as the purchase of a home, a child’s education, and retirement planning.
Risk tolerance would come down to many issues like personal preferences, financial status, and the entity:
Low-Risk Investors: Investors who would prefer constant, slow, and safe returns to suffering from the pressures and volatility of the market. Balanced/delta funds.
High-Risk Investors: Those prepared to stomach a lot of market upset put a larger amount of their portfolio in equity mutual funds against higher returns across longer-fetched timelines.
Getting a handle on just how much risk is comfortable allows you to make sure that those investments are sustainable both emotionally and financially.
Investment decisions are almost entirely dependent on investors’ ages. Younger investors can afford to take greater risks since they have, for all practical purposes, many cycles left before they enjoy the returns. The “100 minus age” principle gives a hint of what you must adopt as a strong investment.
Formula: 100 – Age= Percentage of Portfolio in Equities.
For Example: Suppose you are 30 years of age; by this formula, you are supposed to keep 70% of your portfolio in equities, while the remaining 30 percent can be spared for debt-based funds.
This way, you balance various needs for growth, tranquillity with time, maturity, and decreasing risks in the long run.
Current loans or dependents are major obstacles to considering how much of the free funds or salary can be added to the equity for investment:
Put 4 factors of the capital you had rationed for eating to invest.
Set aside some disposable income for investments.
An emergency fund is really the lions’ defense against selling any investments at all against unforeseen situations:
Set aside six months of convincing expenses.
You may throw money into areas you’ll not likely venture into until your emergency fund hits its stride.
It really gives you that much-needed second wind to give you the grace and gumption to tread with even greater certitude and stability.
You should first make a conscious effort to work out the exact average amount it would be advisable for you to save monthly. Opt for the following as an example:
An amount of ₹50,000 per month.
This would mean ₹25,000, or 50%, for fixed expenditures (rent, groceries, and utility);.
It would mean ₹15,000, which is equal to 30%, for discretionary spending: getting a cup of iced cappuccino at the local café or going to the amusement park for some adventure (now what was I saying);
That is equal to 20% which means saving, and how to invest it?
Now that you have put away some money, it is generally wise to spread it across a class of investments that promises the best return with the least amount of discomfort:
70% in equity mutual funds transmitting growth over the years.
30% in safe things like a fixed deposit or gold to ensure security.
3. Diversifying among Different Mutual Funds.
In mutual fund allocation, you would be investing ₹7,000 across those diversified mutual fund classes:
Invest ₹5,000 of that on equity mutual funds for long-term growth.
Invest ₹2,000 of that on debt mutual funds to combat risk and ensure regularity.
Investing without a concrete plan may result in decision-making that is impulsive and erratic. Make sure that any investment you make, first and foremost, has well-defined short-term or long-term goals.
Investing too much in one market or asset considerably increases your risk profile. A well-balanced portfolio with a combination of equity, debt, and hybrid funds is a good risk management policy.
While investing is very important, make sure it does not interfere with day-to-day requirements and your stability. Strive to keep a balance between income and lifestyle.
Read More: Successful Entrepreneurs in India 2025
Let’s talk about why before we even begin to think about how much. Mutual funds have a plethora of advantages that makes them a great avenue for investment, namely:
Join the group of investors who are hastening towards future possibilities through platforms like 5paisa; it has never been easier to invest in Indian markets!
Knowing your risk tolerance is equally essential. Risk tolerance is the ability and willingness of an investor to withstand variations in the value of the invested funds.
Different mutual funds have different levels of risk; thus, low-risk debt funds on one hand. While high-risk equity funds on the other. Thus, when you choose a fund that matches your comfort level, it ensures that you can remain invested even amid market turbulence.
Take Mary for example. She was risk-averse, yet aggressively invested in equity funds. When the market turned, she panicked and made adverse decisions. Herein lies the necessity of aligning one’s investing strategy with his risk appetite in order to prevent stress.
Main mistakes to avoid
One, risk tolerance is often underestimated, making it impossible for the investor to remain calm during troubled market conditions;
Two, risk tolerance is overestimated, further worsening any real or perceived level of associated stress.
Identify your ability to absorb losses, and stick to your buying methodology.
Monitor Your Portfolio & Rebalance
Investing in a mutual fund is not a one-time affair. Regularly monitor your portfolio, evaluate the performance, and make necessary adjustments based on:
Changes in income or expenses
Market conditions
Life events, such as marriage, parenthood, or a career shift.
For example, should there be a raise in your income, you would be able to devote more towards investment. Alternatively, the changed market scenario may prompt you to re-evaluate your risk exposure.
Mutual funds are the new big thing amongst the millennials, simply because they help take the pain out of regular investing. Their flexibility and ease of use enable even the smallest amount to be invested periodically, downscaling the investment needs considerably and making it favorable to a large spectrum of investors. Yet, flexibility is one of the many reasons that the popularity of mutual funds has been rising.
One of the strongest advantages of mutual funds includes their ability to yield returns beating inflation. Since inflation is the evil of money, it is something by which returns on any possible investment must be viewed. For example, an item costing ₹100 today could see prices soar up to ₹175 in five years. Unless inflation-beating returns are given, investing at an 8% rate of return all of a sudden makes the value you have in savings become substantially reduced as time progresses.
As an example, here is an illustration of how inflation reduces the value of ₹100,000 over eight years at 8%:
Principal Amount = ₹100,000.
End of Year 1 = ₹92,000.
End of Year 2 = ₹84,640.
End of Year 3 = ₹77,869.
End of Year 4 = ₹71,639.
End of Year 5 = ₹65,908.
End of Year 6 = ₹60,636.
End of Year 7 = ₹55,785.
End of Year 8 = ₹51,322.
Confirming what has just been exemplified, one can’t argue the extent to which inflation diminishes the real value of your money. In this respect, returns need to be above inflation levels to maintain and increase the real value of your investments. Mutual funds provide feedback irrespective of these nitty-gritties, and hence could help you achieve this.
In the long-term investment horizon of five years or more, mutual funds are an outstanding device for future planning. This investment generally shows its true power when invested in a compound interest over time.
Investing for the long haul allows your investments to grow; at the same time, you benefit from favorable trading conditions. Historically, mutual funds have provided above-average long-term returns, often within a 15%-18% range during desirable market conditions. It is thus an ideal tool for wealth accumulation and achieving financial objectives.
This article aims to set the stage for establishing future wealth. The most crucial step in investing is to clarify your future financial goals. Once you clearly understand what you intend to achieve, you should express that intent as to invest 15% of your pretax income. The mentioned figure is a reasonably good guideline, as it usually keeps the investor on track, especially when preparing for retirement.
Remember that investing is a long-duration marathon and not a sprint. Don’t worry if you can’t reach the 15% mark today; just keep increasing your investment contribution annually until you get there. Consistency and persistence are the keys to success in investing, not just a few large contributions.
A small percentage of your monthly paycheck could accrue wealth over time, provided those small increments are made consistently. As your income increases, increase your investment allocations accordingly to see wealth grow faster.
Once the strategy of determining how much salary you can invest in mutual funds is in place, the approach to what you’re doing now prepares the foundation for long-term wealth creation.
Happy investing!
Usually, the 50-30-20 rule works well for an investment guide.
50% essential and other expenses.
30% discretionary spending.
20% for savings and investments.
Depending on your financial goals, your age, and existing financial commitments, take 0-100% for your investments.
The critical factors are:
a. Your financial goals, such as a house purchase, different aspects of retirement plan, education, etc.
b. Your age and risk appetite.
c. Your current income and expenses.
d. The nature of debts or liabilities borne by you.
e. Whether you are having emergency savings or not and the extent to which it can save you.
Yes, when your basic expenses are well under check, you can afford to divert much of your income toward investments. For instance, one can allocate 30%-50% of his salary to investments if very little liabilities are borne by him and he has a well-functioning emergency fund.
According to financial experts, one should save no less than 10%-15% of their salary towards retirement beginning early in their 20s. Later starts may require retirement savings in a higher percentage.
It depends on your risk tolerance:
a. If you are an aggressive investor, your funds should be invested in equity or stocks heavily (60%-70%), in smaller quantities in bonds and mutual funds.
b. If you are a balanced investor, equity (50%-60%) and fixed-income investment instruments (30%-40%).
c. As a conservative investor, it is better to invest either in debt funds, fixed deposits, and bonds, constituting somewhere about 60%-70% of total investments.
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This post was last modified on January 19, 2025
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