I did some back of the envelope calculations today and our savings rate came out as 70%. That is pretty good and a lot better than the national average of about 25-30%. This is just based on salary that we receive after tax deductions and improves by a couple of % points if I include the total PF contributions (self+employer). Woohoo! Will share a more accurate number once we have accurate spending details for 3 months or so.
But where does the remaining money go?
Rent is one item that has a huge impact on your savings. For us this is about 13% of our income or about 43% of our expenses. As I had mentioned earlier we have rented a fully furnished 2BHK. This should reduce in the next couple of months as we are thinking about moving to a 1BHK. This should reduce rent costs to less than 10% of our income and that means increase in our savings by 3%.
There are 2 types of travel that we do. One is to visit both sets of parents – we visit each twice a year and it costs us about 2% of our income yearly. The other type is vacations – we generally plan 2 vacations a year and this varies on where and how we go. This year was cheaper than normal since 1 vacation was via road and we shared travel expenses with another couple. We expect this to be higher next year when we are planning a trip to Greece. We expect this to be around an average of 4% every year.
We consider this as an expense instead of a saving. We current have 4 active plans – 2 each. We have to close down 1 each that are a combination of investment+insurance and start 2 new term insurance plans a couple of years from now. We are pretty well covered with the other existing term insurance. The total insurance cost now is 2.5% of our income. Once we close down the bad plans it should come down to 0.5% and increase to 1.5% when we start 2 new plans. This cover will be more than enough until we retire. At that point we will need decide if our earnings (if any) are enough to justify this expense.
This includes groceries, fuel, personal supplies, home maintenance, utilities and other expenses necessary for daily life. I right now have only a very rough estimate of what this is every month and it is about 8% of our income. We do not necessarily track prices of what we buy and whether buying in bulk saves us money. Once we have 3 months of information available, we can see if this effort can bring in some benefit. See this post for an expense tracker.
This includes car maintenance, gifts and other unavoidable expenses. This totals up to about 1% of our income.
What I see from here is that we can push up our savings rate by another 5% or so without too much effort and we expect to hit this next year. When we include the contribution to PF this will be very close to 78% or so. Hopefully next year will see one of us get a promotion at work that can help us achieve 80%.
What is your savings rate? How do you plan to push it up a notch?
For now about 50% of our savings is being invested in stocks – via Mutual Funds and our own stock picks. 40% of our investing goes equally into 4 Mutual funds as monthly SIP – these mutual funds are spread across large, mid and small caps. We wanted to see if we could pick stocks and still show a good return and now have about 9 stocks in our portfolio. We invest the remaining 50% equally across all stocks every month. Since the prices have dropped now we are considering a bulk investment in a 10th stock. We are looking to early money via dividends and are looking at only long term investments.
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