How to afford spending, saving and investing on any income?

Ever since we launched Saveabhi, a vast majority of our users reaching out to us over our chat-based support have sought help in figuring out how much to spend, save and invest based on their income. They obviously want to know how they can afford holidays, bar hopping, weekend shopping while still being in control of their bills and having at least some semblance of financial discipline.

I consider it a healthy sign as this provides validation for the problem that team SaveAbhi is seeking to solve. However, let me not digress and straight away provide you the secret sauce that nearly always works.
It is called the 70:20:10 rule. It means that whatever might be your income (10,000 or 1 lakh or 10 lakh) per month, allocate maximum 70% to expenses, 20% to saving and minimum 10% to goal-based investments.
Now I am going to teach you the process to actually execute these rules

Income – Income here means In-come. So whatever hits your bank account every month. Some people have irregular incomes. Don’t worry take an average of last 3 months. All this data is available when you click on the ” Track your income and Expense” section on SaveAbhi’s dashboard.

An expense is everything that you spend money on. Rent, electricity bills, education, medical bills, insurance, food, petrol, emergency expense. Anything and everything that you spend money on.
Here is how you execute the 70% rule
Let’s assume that your average monthly inflow into your account, also called income, is INR 50,000.
70% of this amount comes to INR 35,000. So your total spending in a month across all items – Rent, EMI, petrol, insurance, food, grocery, movie, dining out etc needs to be below INR 35,000.


Some pointers
Please note that 70% is the maximum. The lesser you spend below 70% the better off your family will be.
The first thing you need is a complete description of all your spending done over the last 6 months. Everything means everything. If you spent through a card or other digital means then this information will again be available in the “Track your income and Expense” section of the Saveabhi app. ATM withdrawal should help you consolidate your cash expenses. Now divide this total by six to get a real monthly average.
Now categorize this expense into categories like rent, shopping etc. Again the category wise data is already available on SaveAbhi. If the categories for certain expenses is not provided then you have the option of changing it manually.
Now, look at the total monthly average. Is it above 70%? You need to start looking at the discretionary categories above and cut down all non-essential spending and look at the number again.
Is it still above 70%? I think you need a lifestyle change. Consider all options – Move to a cheaper house, drive a cheaper car, stop eating out. It is crisis time. It is like a doctor telling you to lose 40 Kgs to live long. You have to get into a crash diet. But don’t lose hope. Even people who have to lose 40 kgs get to eat Samosas again, once their weight stabilizes. You will get to spend money again as your income rises. It mostly does, at least till mid 50’s.
Once done, pls make a category wise budget totaling to 70% of the income and stick to it.
Expensive debt like Credit card outstandings, car loans and even home loan EMIs chase us like parasites throughout your life. You need to ensure that they fit within the 70% rule but please don’t stop there.
If you have these debts then paying the principal amount off should be your second priority after restricting expenses below 70%.
20% to savings
Break this into two parts – 10% for an emergency fund and another 10% for short-term goals like holidays etc. To ensure that you dedicate this amount every month requires you to put a system in place. The savings need to be in a liquid and low-risk asset.
SaveAbhi provides a system to automate this process through SIP or Save the Change feature.

Invest the last 10%
Depending on your personal inclinations you can either Invest this in a long-term asset like a value investing mutual fund or do a goal-based investment strategy like investing for your kid’s college education.
Trust me, this 10% can help you retire rich or lead a fulfilling life.
So this leaves us with one final question. What if I have some extraordinary income in a month which is much above my monthly average and I still have money in my account after following the 70:20:10 rule. Well, this is where the lump sum investment mode comes in. Again this is featured on the dashboard of the SaveAbhi app.
Try these tips. They always work.