How to save enough to make tax-saving investments

Yash is single and earns around Rs 12 lakh a year. Though he plans to save he does not have enough money left after his expenses. Despite his best intentions, he is often left scrambling for money to pay his insurance premium, keep his PPF account alive and complete the Section 80C investments on time. The Covid-19 pandemic has only added to his woes as he is unlikely to get a performance bonus this year. Yash does not know if he will be able to meet his target of saving 20% of his income for the year now. He does not want to borrow from friends and family. What should Yash do to be able to save more?

Low income reduces one’s ability to save. For someone like Yash, the tax-saving instruments under Section 80C are perhaps the only avenues to accumulate some wealth. Trying to save about 20% of one’s income is an ambitious target for a young earner, especially in the current challenging scenario. Yash may find that his expenses quickly consume his income, leaving him with almost nothing to spare.

Yash should first evaluate whether he will be able to save 20% of his income every month, in order to ensure he can sustain such a stiff annual savings target. He must take stock of his typical lifestyle (travel, gadgets etc.) and other avoidable expenses, and see if those can be curtailed in the current environment. In case his mandatory expenses— rent, power, transport, telecom, household etc—are more than 80% of his income, his 20% saving target would have to be revised down. The current pandemic may also be the wake-up call for him to consider allocating some money towards buying a health insurance cover. He can ignore buying a life insurance policy for now as he has no dependants.


If he finds that he is able to save, but lacks the discipline, saving before spending is a better approach than hoping to save after spending. Yash should set up an electronic clearing service (ECS) mandate in his bank account and ensure that as soon as his salary is credited, money is transferred towards his mandatory tax saving investments and a recurring deposit. At the end of the year, he can use the recurring deposit corpus to pay his health insurance premium.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)