Income is not Wealth

POSTED BY Jagoinvestor ON March 8, 2012 COMMENTS (174)

Let me ask you a question. Ajay earns Rs 1 lac per month, and his friend Robert earns Rs 40,000 per month. Who is more rich and in better position ?

In all probabilities most of the people would say Ajay because he earns more than Robert and that too 2.5 times of Robert’s salary. However you can’t give the judgement so fast, because we have not mentioned how much are their expenses, or in other words how much money they burn at the end of the month and what is amount is actually saved. What if Ajay’s expenses are Rs 90,000 and Robert’s expenses are Rs 20,000? In that case Robert would be saving 20,000 per month and his rich friend Ajay would be saving just Rs 10,000 per month. Right ?

High Income or Saving

What matters is Savings, not Income

So you can see that the real thing that matters is the money saved!, not earned. However more income helps in more savings at the end, but its not true always!. The real wealth gets created by your savings and not just by earning big!. So, if you are earning a lot and saving a lot of it parallely each month then you are in a good position. But if you are earning a lot, but spending a LOT too, then in reality you are no better than someone who is earning less and saving less. In that case, from the future aspect, wealth creation will either be too low or it just won’t happen.

Lots of people who have big incomes are actually not very good at saving money – they’re used to having plenty of money coming in, so they don’t pay enough attention to the money going out.

For example – If you and your friend both are saving Rs 20,000 per month and in long run, it’s going to continue that way, it really make no difference for how much you both really earn, because in the long-term, your wealth creation is the function of how much you save and how much of it you actually invest properly.

So this boils down to one big question – “Are you just rich by your Income or are you really rich by savings?”.

A lot of people earn very high salaries, but they end up spending most of it. You can blame this to high standard of life style, high status symbol and all sort of expenses, but your real worth is what you save at the end. I know one friend personally who is a bachelor and he makes around 1 lac per month, but spends 70,000 per month and I know one more friend who earns 70,000 and spends 20,000 per month. Though the first one earns more than the later one, the wealth creation is happening pretty fast for the second guy, even though he is earning lower than the other friend.

Now the question is – How much of your income do you save?. By Saving, I mean any kind of savings which is left with you at the end of the month after expenses + the investments you do in different places (because even that’s part of saving only).

Whats your Saving Ratio?

A good indicator to know is finding a simple ratio called “Savings Ratio”. Just divide your savings at the end of the month by your income and that’s your saving ratio? How much is it? Is it 20%, is it 30% or is it 75%. How much is it?

Lets see an example . Say Ajay makes Rs 50,000 a month and he pays rent of Rs 10,000 , pays another 12,000 in home related expenses, spends another 6,000 in entertainment and outings and at the end of the month is left with Rs 22,000 , thats Rs 22,000 saved with income of Rs 50,000 – which is 44% saving ratio . You can do it on monthly or yearly basis , but put some numbers on table and do this important calculation.

I would personally say that a saving ratio of more than 40% is a good enough number. But if its below 20%, you should really do something about it. So what are your plans about increasing your saving ratio from this point onward? What are your thoughts about this concept of Income Rich and Savings Rich ?

174 replies on this article “Income is not Wealth”

  1. Nitin says:

    🙂 It is not the saving which makes you rich, its the velocity. If you know what I mean.

    1. Glad to know that Nitin ..

  2. Harpreet says:

    Mines 90-95%

  3. Shweta says:

    What is there is a huge chunk from your income which goes towards EMI? Would you consider that as savings or an expense?

    1. You can consider the principle part as saving and interest part as expenses

      1. Pradyuman says:

        ! 🙂

  4. Abhijit says:

    Hi Manis / All
    Is the premium paid on term plan or health insurance are a saving? or we need to consider it as expense? I think these can be considered as your savings.

    What are your thoughts?

    1. You dont get anything back , so from that angle it may be seen as an expense, but its a valid expense to cover your life . So its fine !

      1. Abhijit says:

        You are right Manish, got your point.

  5. Informative Post!! Along with this post..You tell how to save by diversifying the investment in the path of growth and meaningful.In current situation who plans to save Rs.20000 what should he could do??Tell me please Mr.Manish

    1. SIP in mutual funds , thats what i will suggest !

  6. vinaykumar says:

    i dont about investments but i’m interested please post the which is better plan actually i started my career from last year please take it in to consider and give suggetions accordingly.

    1. Please post your questions on forum : f

  7. vickss says:

    i do not think that 20 % is good. i have more than 50 % saving of my salary..Got a good start..

    1. Good to hear that .. 50% is really great !

  8. Dave says:

    Wealth is never about Income. It is how much we save that matters. In turn, we will grow our savings by letting the money work hard for us. I advocate good savings habits and good passive cash flow. Great Sharing. Thanks!!

    1. Thanks for your comment Dave !

  9. Dinesh says:

    Thanks manish for posting such type of article

    Its really helpful for tracking our income & expenses ratio of monthly/half yearly/Yearly But suppose if i had taken the Home loan for 20 Years and almost 50% PA amount goes for EMI and 10% PA for insurance policies like Life insurance, ULIP & Mediclaim. Then how could we decide that our saving ratio is good/better or worse.
    1.Income source is single (salaried in private sector)
    2.having a one child
    3.Wife is house wife
    4.Regular Monthly expenses minimum near about 11000
    5.Non predicted expenses like medicines, illness

    Pl. Advice me how to manage my saving in this situation and increase the wealth by using the current resources.

    We are sincerely awaiting for your reply
    Thanks in Advance.

    1. Dinesh

      Saving ratio only looks at your INCOME and expenses . thats all ..

      So just remove all the expenses from your income and you will get saving number , divide it by the total income and you get saving ratio

  10. NewUser says:

    Help ME ….
    I have 40 lacs house (Still need to pay 20 lacs) and LIC 5lacs are only savings and current take home salary 55k no other saving expect some cash (which left out after paying EMI & Prepayment )….net monthaly expense 18k ….current age 36 yrs …. i really appreciate if give me some guidance about how can i planned my saving.. i know its late ….but better late than never

    1. Newuser

      this much informaiton is not appropriate to plan anything . You need to see each area of your financial life and see how it can be optimized , Better meet a financial planner .

      1. NewUser says:

        Thanks Manish… For your reply….

  11. Rakesh says:


    Good post. Savings is good but investing that savings amount is even better.

    1. Yes Rakesh .. that post is coming soon 😉

  12. Anand says:

    Manish Sir,
    I give my status as below:-
    1. Holding Four LIC Policies ( Premium 15K /A) for 4 Lacs
    2. Holding Aviva i- life Term Insurance for 50 Lacs for 28 Years
    3. Holding ICICI – Life stage Pension ULIP Policy for 3 years- 1.9 Lacs (Paid)Completed this year
    4. ICICI – Life Time Super (ULIP) – 80 K for 3 Years (Paid)- Completed 2 years back
    5. Reliance Life Insurance – Rs. 30K for three Years (Paid)Completed 2 years back
    6. Other Mutual Funds – Holding 1 Lac (with Minimum Profit)
    9. Going for Housing Loan for 12 Lacs – with EMI 15/m for 15 Years (would like to sell all MF and Ulip Policies for Initial Investment)
    10 Holding Mediclaim Policy provided by Company – family floater for 5 Lacs from ICICI Lombard.
    11. Holding Mediclaim Policy for Family from Oriental Insurance for 3 Lacs – to avail long term benefit
    12. Holding shares for Rs. 5 Lacs with 40% Loss.
    13. Investing 5K in Gold for my Girl who is 13 years now.
    14.Getting 10K income from family Propety.
    15. Family Expense 20K /month (Max)
    I am 42 Years/42 K Net Income / would like to go for 15 -20 K as Investment apart from above.
    I have two kids aged 13 years Girl and 6 Years Boy.
    Pls advise. I am sincerely awaiting four your advise.

    1. Anand

      This is not the right place to ask this question . Our forum is the right place . Please post your query on that –

  13. Avish says:

    hello Manish,

    I am 22 and going to start earning from the next month. I bought your book, Jagoinvestor some days before. To be very frank, I never thought of any financial planning(before reading your book of’crse). After reading only the first 2 chapters of the book, chills have gone down my spine !!
    before reading these chapters, i was a pessimist, as my starting salary package is 3.2 lakhs per annum …. but boy !! your strategy makes sense…and i thank you for such a guidance…and i will definitely suggest this book to all my friends…its a must read !

    Will post more, as I further read your book..


    1. Avish

      Good to know that you liked the book a lot . Would look forward to your review soon ! . 🙂

  14. Suresh K Narula says:

    You have taken illustration of those people who earn well like 50,000 pm or 1.00 lakh pm. But those people who earn between 15000 to 20000 pm as they could not save too much as their basic need expenses such as food, milk, school fees, transportation, medicines etc. dominate on their income and leaving no room for savings. So, it does not matter, how ideally % of income you should be saved. A man who earns 50,000 pm can save enough as he could enable to cut his wants expenses ,if a man who earns Rs 15000 pm has no room of cutting his expenses as his basic needs could not be sacrificed.

    1. Yes Suresh

      thats a valid point .. The idea of the article is just to communicate that high income does not mean good wealth always . Thats all

  15. Renjith says:

    Hello Manish ,
    I am following your articles on jagoinvestor for the past couple of months.. also went through the PDF booklet got via e-mail.. all articles are really worthy especially the article on the benefit of term insurance plan over other expensive plans. This website is for those who think MONEY MATTERS… Please continue the journey..

    1. Thanks Renjith 🙂 .. good to hear that you liked it 🙂 . Keep sharing it with others !

  16. Nice article.One more point is though you do not have expenditure at the end of month many people keep that money in savings bank account just for the sake of liquidity and even may be the other reason is safety.

    As it was explained many times in this blog,you need to save money and the correct way of saying the same is ,you need to invest that extra money property by investing in different parts like mutual funds and debt so that it can create a good wealth over the long term.

    It is because ordinary savings will finally loose out over the long term because of inflation.

    Thank you manish and nice article.

    1. True .. I am planning to write an article on same line 🙂 soon !

      1. Waiting for that and thank you for responding.In the earlier post

        you have explained about saving just 5000 and get big money after 35 years.This kind of articles surely help and give enough courage to the people to start investing in mutual funds for a long term with out bothering about short term fluctuations. Request you even compile a list of equity and debt funds and distribution of money basing on age profile,PPF investments etc.

        Waiting for the article and thank you in advance.

      2. Naveen says:

        Hmmm .. the other side is spending. Do people realise whether they are afford the expenses given the financial situation and liabilities? Other day I was watching The Suze Orman show on CNBC TV18 which has a section ‘Can I afford it?”. Watching the show I got reminded of Manish :)…. Perhaps, Manish can be our Suze and start a new section on JI where confused people can take your advice if they can afford it 🙂

        1. Yes the other side is definately EXPENSES and its a key to understand if a person is really having surplus or not .

  17. Prithvi says:

    In this discussion the consensus is that if EMI should be considered as saving because it’s getting invested in an asset which does not depreciate

    What if the housing bubble bursts and your house property deppreciates?
    What if put my savings in gold ETF and it depreciates. Then should add these as expenditures instead of saving?

    What if buy a diesel car whose price goes up due to tax structure change? Should I know consider my Car EMI as saving?

    1. Prithivi

      You should go as per your thinking . If you feel housing prices will start going down and keep continuing down and down for years and decades ,then you should consider it as expense .

      1. prithvi says:

        i thought about this. the difficulty compounds when you invest in mutual funds or equities, the price might go up or down.

        it’s always better to calculate your networth (@ mark to market) at the end your year.

        say you earned 10L this year, and spent 5L on consumables, rent etc (no hard asset), 1 lakh on jewellery, 1 lakh is left in bank account, and 1 lakh in equity / mutual fund. and 2 lakh on housing loan emi.

        your networth at the end of the year is assets (marked to market) – liabilities

        which is 1 lakh on jewelly (current market rate has gone up by 20%% hence 1.2 laksh), 1 lakh in bank account, 1 lakh in equity (gone down by 50%, hence 50 thousand). and your house is worth 30 lakhs (current market rate is 35 lakhs) and your housing loan liabilities is 28.5 lakhs.

        hence your total net worth is 1.25 + 1 + .5+ 35 -28.5
        =8.5 lakhs

        one should always look at your networth. all rich people are gauged by their networth and i don’t see why it is not applicable to all.

        savings formula / % is of no use.

        , and 3 Lakhs on new year without emi.

        your networth will be

        1. Yes Prithvi

          that the next step now – This aritlce just wanted to communicate one thing and that was that High Income does not always mean you have high networth .


  18. bemoneyaware says:

    Rightly said. We often confuse Income with wealth and then wonder why the superstar of their times is in dire straits these days. I think it’s not only income but expenses, assets and liabilities that make up one’s wealth.

    The four corner stones of your financial foundation are as follows:
    1. Income : Is what one earns. Technically it can be defined as the money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments.
    2. Expenses : is what one spends. Most of us spend money on food, clothing, house, mobile, utilities, entertainment, etc. Each month we get bills for our expenses and use money from our income to pay for them. An expense or expenditure is what one pays to another person or group for an item or service. For a tenant, rent is an expense. For students or parents, tuition is an expense.

    3. Assets : adds to one’s income now or in future strengthening one’s financial position ex: investments in gold/silver, deposits, stocks, mutual funds, art/antiques, land or house.

    4. Liabilities:is a form of obligation or responsibility. It represents an outstanding debt, products or services that have yet to be provided. Ex: An old vehicle that needs a lot of fuel and repairs, Personal loans, Credit cards,

    Building wealth is a simple matter of increasing your Builders (Income and Assets) and decreasing your Bleeders (Expenses and Liabilities) or increasing your Net Worth . This sounds simple, however, it takes a lot of discipline and effort to build wealth.

    Sadly we do not allow people to drive a vehicle without taking a license test but allow them to enter complex financial world without much financial education. If you build a strong foundation your tower can reach the sky!

    This is from my article Four Corner Stones:Income, Expense, Assets, Liabilities

    1. Thanks for putting that 🙂 .. obviouslyt there are different dimentions of wealth and how it becomes 🙂

  19. ravindra kale says:

    Dear Manish,
    Never thought about the ratio of saving. when net salary comes it already paid for the portion of saving in PF, Insurance premiums (of endowment plans), Gratuity, etc. Should we need to consider this.
    apart from this compulsary saving home loan EMI, SIP investment are also there.
    Time horizon for the various investments are different.
    Should we consider only saving or investing the saving?
    please guide.

    1. Ravindra

      Yes you need to consider that .. take your gross salary and see how much money is SAVED in PF , ENDOWMENT , Gratuity , and finally cash saved at the end . Use these two numbers for finding the saving ratio for yourself

  20. Ashutosh Goel says:

    Hi Manish
    this is quite an inspirational message.
    ya u r true. we must save for secured future.
    i believe that small saving is the best saving. can u suggest me some plans in which i can save my money and get high returns

    1. Ashutosh

      Here we are just talking about the money you can save , I mean money not spend . Now how to spend it is another point and we need seperate discussion for htat

  21. Pramod says:

    I believe that the point is not so simple as has been presented in the article. How can only the savings be a measure of richness. It is highly possible that Ajay is spending his money upfront (since he can afford) on the things for which Robert is saving his money. Say Ajay has bought a new car & Robert is saving for the down payment which means that he will liquidate his savings a year after & then his savings will be say zero whereas Ajay’s savings will be intact. So here only the money which is left after completing short term and medium term goals should be accounted.
    Another point is to live a life. Robert can be richer (saving more) by living in a one room hut, walking to his office and arrange one time food from the nearby temple or gurudwara.
    All I want to say is we must look at what Robert is saving for ? if Ajay has already aquired those things and still able to save 10000 he is undoubtedly richer than Robert. So robert might not be saving but postponing his expenditures and Ajay is actualy saving after taking care of his expenses.
    I wish fellow readers and Manish to enlighten me further on these assumptions.

    1. Pramod

      Agree with all your points . Also how well they invest should be considered. Like if A is saving 10k and B is saving 12k , but A is investing at 12% and B is investing at 5% , then here A should be accumulating more wealth at the end despite saving less than B .

      Coming to your points , those are other dimentions of how to ascertain how will have more wealth . In this article , I just wanted to point out one aspect and that is one should not think that just earning high means they are wealthy and there are many variables . I pointed out 1 variable , where as you pointed out other variables too .We will talk about them also in some other articles , else this one article itself will become a book in itself 🙂

      This raised a good point – What parameters are to be judged to find out if person A will have more wealth than person B at the end of their careers ? Or what is the algorithm to find it out ?


  22. Srinivas says:

    In Sanskrit, there is a saying. “Ekam Sat, Vipraah bahudhaah vadanti”. This means “Truth is one. owever, there can be many view points”.

    Taken in a different way, there are many different views of looking at the same point. All may not see from the same view points. Hence, any view point is OK as long as it is based on a verifyable fact.

    Are all these view points required. To one, his own. One view point may be liked by some and another view point by other.

    However, if one has good grounding in his finances and acively manages his resoures and deploys them optimally, different explanations are not required. For him fact remains same. He has to optimsie his resource deployment so that he can maintain or improve his life style rationally. How ever, not all are of that type. Hence…….

    Thanks for providing a different view point on expenses and savings.

    1. Yes Srinivas

      Good comment from you . However I was not able to understand the final conclusion from your side, Are you in agreement to the concept or not ?


      1. Srinivas says:

        I was reacting to some who say such metrics are not useful.

        There are many ways of seeing an issue or point. 5=2+3=4+1=6-1. All these show a facet of the fact. Each one can see/analyse from his own perspective. However utility of the same for one depends on his requirement/understanding.

        Conceptually i agree with your view point.

        However, if one has a firm grounding in finance and full control on his cash flows, the metrics are of less importance.

  23. Amit Maheshwari says:

    Excellent article as usual. My comment on 33:33:33 rule is that the ratios in the rule are actually determined by a person’s risk taking ability. Few examples are below
    1> Somebody who is totally risk averse may want to do 33:0:67 (Expenses:EMIs:Savings). I have seen people with home loan at 8% prepaying it, I wouldn’t do it ever.
    2> Moderate risk taking person using 33:33:33 (Expenses:EMIs:Savings). This is generally the case with people who have only home loan. After all, home loan is not a bad loan as you are building an asset
    3> High risk taking 33:50:17(Expenses:EMIs:Savings). This is still okay if EMIs are towards building assets (House, land etc) and not towards building liabilities (Car etc)

    It will be very nice if you do a write up on the ratios based on diffreent personas (case studies). Personally, I would like to split EMI in 2 parts (Good EMI and Bad EMI). I would also like to split savings into 2 (Forced/Disciplined e.g. PF,SIP and Voluntary e.g. MF without SIP).

    Few related questions
    1> Which types of insurance premiums get counted as savings? My understanding is endowment policy premiums should qualify here but I would like to get an answer for it.
    2> I beg to differ on home loan EMI being pure savings. Are you sure it is all savings? There is a big part of the home loan EMI that goes towards serving the interest on the loan.

    1. Amit

      Good points here .. yes the ratio will depend from person to person and it will vary so much that standardising this concept is a waste in a way .. If one can save 20% of his income and invest wisely , thats all .

      Next point

      1. Endowment policy is actually saving only , but a bad choice , so now we are coming to the next point which is not discussed in this article – unless you are saving good and investing in a good way – its again a waste ! . Because with 8-9% inflation , even an endowment plan is eroding your money . So count it as saving only if you are investing it properly – will write an article on this in few days 🙂

      2. I can see the point in your argument now – i didnt see it that way – I would say you should count only the principal part in saving . However lets leave this whole exercise . as the idea of the article was just to communicate that INCOME IS NOT WEALTH – the way peopole think about it and feel happy 🙂 .


  24. Many years back as a kid I read somewhere that the first expenses in the month must be savings. It is only over the last 2 years I am adhering to this. I just push 20% of my salary to a Liuid fund as soon as the monthly salary is credited (this is other than exisitng STPs, which I consider as Investment expense) so I stare at a lower balance than a day before – that also tends one to spend less as the month progresses (not necessarily!).

    1. This is very good practice and an example 🙂 .. good one !

  25. Raja Mohamed says:

    Nice article Manish…good articulation with simple but strong examples…


  26. vignesh says:

    Hi Manish,

    I have appreciated many times form having a website like this and educating the general public about the money(which noone nurtures after earning it).

    I am one of the beneficiary of the jagoinvestor. I am a regular reader of your blog.

    Today only I got my jagoinvestor book from flipkart. Need to start reading and provide my appreciation after doing that.

    Expecting more post!!!!


    1. Great to know that Vignesh

      Just go through it and let me know how was it ! .. will look for your feedback on flipkart 🙂


  27. Vanga Rajendra Prasad says:

    Poor need to save at least 10% of their income
    Male belonging to middle class/lower middle class need to save 25% of their income for long term. Female belonging to middle class/lower middle class need to save 50% of their income for long term..since maintenance of house (financially) is the responsibility of the male in India
    Male or Female belonging to rich and above middle class need to save/invest more than 50% of their income. I wrote about these in my book Money Purse(on savings and investments in Telugu) released in 2009
    Society needs people like Manish for its financial literacy

    1. Thanks Vanga

      I would say one needs to save maximum what they can – why have percentages 🙂

      1. Vanga Rajendra Prasad says:

        ‘Why should we think about calculations? We need to save as much we need’-for me your comment is like ‘this’. I am sorry to observe a casual tone in you first time.
        For majority, ideal way for saving is ‘saving first and spending the rest’. For that these percentages are required.

        1. When did I say that ? All I am saying is , if one can save maximum what he can , then he should do it , If I know that one should save atleast 40% of his income – But if he can save 70% , then he will save 70% … All he needs to do is explore his full potential .

  28. prithvi says:

    Instead of calculating how much % of your income you are saving, there is a simple formula explained in the book ‘Millionaire Next Door’. This book is a must read for all people who wants to become rich.

    Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by 10. This, less any inherited wealth, is what your net worth should be.

    which means if you are age 30 and currently you are earning 8L pa. You net worth should be 30*8/10 = 24 L. Your net worth is your current assets – liabilities. If your networth is less 24 L, then you are not saving enough.

    1. pattu says:


      I save 55-60% of my gross pay each month. I have been at it for last couple of years (with no guarantee for the future due to impending expenses. I wish I could be as confident as Rajesh Kumar!).

      If I take
      age*gross annual pay/10 I get about 43 lakhs. My networth is about less half of this (not including my own house and gold which I never intend to sell if I can help it and therefore not counted as assets).

      I know I save a little more than enough for all my goals so I dont think this formula can be used to determine if you save enough.

      However If I have 43 lakhs I can retire today. However 8% inflation means I cant stay retired for long.

      This is a useful link

      For a country like the US where inflation is a near constant ~ 3% saving 75% of gross pay for 5 years can enable a person to retire!

      Although some people in India try to ape this model I dont think it is possible to stay retired in a country with a near double digit inflation unless you extremely luck with the markets.

      1. pattu says:

        speaking of networth I dont see what is the use of finding ones own networth. My wife should know my networth. So that if (when!) I die she can estimate the kind of lifestyle she can lead.
        Say I know my networth is 1 crore. What am I going to do with it? Grill and eat it? The traditional networth calculations includes assets which one would/should never sell (home) and all savings done thus far for specific goals.
        It gives no information about risk appetite, expenses, and targets for each goal. You could make a financial plan without knowing ones networth.
        I think its needless jargon which permeates the CFP syllabus.

        1. Jagbir Singh says:

          Cent per cent agree with you pattu. Its better to focus on job/business than spend time on such calculation. I never understand the need of complicating such simple things, save as much as you can and invest it wisely. That’s it!! or I am missing something here?

          1. pattu says:

            Jagbir, I should say thanks! Very few agree with me usually. Even fewer 100%!

            Understanding one owns risk appetite, spending time on how much you need for a goal and how much to save is time well spent. Worrying about jargon, overthinking about investments, chasing after 0.5% better interest rates, subscribing to every bond that is offered without keeping goals in mind is a waste of time/effort.

            “save as much as you can and invest it wisely”. That is it.
            Common sense rules!

    2. Prithvi

      Good formula – I can see that in later years , one will have high salary and his age will also be high . So he will be in later stage of his career and the formula will give some good number as his networth ! .

  29. Rajesh Kumar says:

    My savings is around 49% of my take home and this I am continuing since last 8 years and will do till another 10 years. I do not have any other backup for my retirement days. Hope this will serve the purpose during my retirement life.

    1. Jagbir Singh says:

      Its nice to see saving rate of 49% and congrats for maintaining that for such a long time Rajesh. I hope you are also investing that amount wisely because one invisible enemy of money is inflation and it can slowly eat your savings.

  30. Jagbir Singh says:

    Good article Manish. While you are taking stand to advise people should save, let me put some words in different direction. Living beyond your pocket is surely a recipe for disaster but living with a reasonable means is what I think is good then squeezing yourself too much. Many people are not able to find the balance. Either they spend too much or try to save too much. Over the longer run, a person saving less but invest smartly can build more wealth than a person saving good amount but put that in poor instruments. I see people who are earning good salary but spend 3-4 hours daily in traffic for office commute to save some bucks on house rent. Isn’t it better to spend such time with your kids/family even it comes with a small cost? Can you buy back such wasted time in your old age even if you will be sitting on the bags of money?

    I heard these 3 stages of life and I think its very true:
    1. Teens: You have all the time and energy but no money.
    2. Worker: You have all the money and energy but no time.
    3. Oldies: You have all the money and time but no energy.

    So please don’t burn yourself too much. Take comfortable amount every month upfront for saving and spend remaining generously on your family/pleasure?

    1. Suresh Naidu Gali says:

      Hi Jagbir ,

      Good comments

    2. Ramz says:

      Hi Jagbir,
      A very good point about spending time traffic.I hope there are lot of things to do other than admiring the traffic 🙂
      You can even save your mental peace not just money 🙂

    3. Yes .. i am not talking about squeezing oneself . never do that .. I am just talking about cutting down un nccessary expenses

    4. Subramanian says:


      Valid arguement.

      The money (even if u earned it) is not yours till you spend it!!

  31. Girish says:

    Great article Manish! An eye openor 🙂

  32. Abhinav Gulechha says:

    Thanks for the post Manish. Yes, agree with your concept that one should try to be savings rich, whatever be his/her income level.

    My action after this post are:
    • Maintain my expense directory on daily basis (this will make me aware of any discretionary expenses that I can cut down on)
    • Track my savings/income ratio on a regular basis (bringing it to 40% will be a hard task though)…

    I pay a home loan and a car loan. Agree on your point while car loan is an expense, home loan EMI is a saving. Actually home loan is the best forced saving I am doing, which otherwise I would have spent:)….also that way I think EPF is a really good savings option, as your take home salary is net of it….

    Thanks for the post again!


    1. Abhinav

      Yea . agree with you ! goodluck

  33. psangani says:

    Appreciate the way you explain the important things..!!! As truly said, the only way to explain is by giving a real time example.. keep sharing the knowledge..
    Happy investing.. Happy Holi & dhuleti 🙂


  34. Suresh Naidu Gali says:

    Good information in right time for me.


    1. Thanks Suresh

      What is your Savings ratio ?

      1. Suresh Naidu Gali says:

        Hi Manish,

        My saving ratio is only 20% at present and i am planning to Invet in House loan for this also. That meens no more savings Except paying the Instalments for the investmnet in House. It is the right Approach ? Pl suggest me

        1. Suresh

          Even the EMI’s you will pay should be considered as Saving because eventually its building you some asset . See your expenses and how you can optimize it , focus on how you can earn more !

  35. Dear Manish
    This is an excellent article and very relevant in modern days where the present youth spend more than their income. I hope this would be an eye opener for them and they would first earn then spend and save. As requested by George Joseph can you give tips on how to save while shopping. Once again you rock.
    P Kameswara rao

    1. Kameshwara Rao

      Thanks for your compliment , its more of common sense than a wisdom ! .. Regarding saving money on shopping – there is no tricks – its so simple – just go with predefined list of things you need . thats all – and stick to it !

  36. Suhas says:


    Again a good article…Savings Ratio thats a good food for thought…..

    I think other then that you need to have additional ratios

    Like Insurance ratio and Loan ratio.
    Insurance is also a type of saving.

    May be it is Term,Accidental,Health,vehicle,Critical illness… a few to name.

    Loan ratio been the Credit card,Personal loan & Housing loan (wealth creation)

    If we have a good budget plan for a month (by keeping records initially) &
    then scale it over the year we will be in position to get how much we can save a year & intern invest it.
    For credit card I make a FD of around 15k (SBI gives 7 %) as soon as I get my salary so I see that i donot spend much through it.

    I mostly increase my Lumpsum housing principal amount till I get 1 lac 80c (12% floating currently that are the returns I get:))) and then
    put extra money in existing SIP MFs as lump sum. The year long Budget helps to judge me to how much extend I can go up to…

    I will need to seat and calculate the ratios.

    But I think we need to really follow As said………… first, save, and then spend with what you are left…..I still been doing the other way though……..:))

    1. Yes .. we have many type of ratio’s and i will write about them too in future !

  37. S M TELANG says:


    1. thanks for appreciation

  38. Saurav Sinha says:

    Very relevant article Manish.
    I maitain a expense-income diary wherein at the start of the month I log my income+carryforwards(my term for savings in previous month) & then allocate my investment amounts in various MFs/PPF etc to 1 of my bank accounts.

    I calculate my expenses under various heads like Petrol-Phone bill-Grocery-Cosmetics-Outings-Veg+Fruits-Utility bills. I then compare the changes (if any) in all of them in previous month & identify areas where I can improve. These habits brought down my mobile bill & veg expenses by 2-3K per month.

    I used to be a huge spendthrift 2 yrs back. Never ever bothered about savings, investments etc which when I look back now was a big big mistake. After gettig married I took the responsibility & hope to be on track very soon.

    Sorry guys but this article took me back to those days …. Thanks Manish for creating this site which really changed my relationship with money. GOD Bless U & JI team.

    1. Thanks for sharing your experience and what you do . It can actually teach other people what they can do about it in their financial life . Would you mind sharing with me in detail about what exactly you do over email ?


      1. Saurav Sinha says:

        Why not Manish, I can tell it here itself coz my diary is a simple one wherein I, on a daily basis, log expenses+income (which might come from selling stocks/MFs/money given as gifts by our seniors) & at the end of the month simply do the sum-total & differentiate against separate heads, & revert to the same data of previous months, which tell me about the areas I need to cut-down or increase expenses. Thats all. Alls done just by manual loggign & calculation.
        Thats all.

        1. Veman says:

          Hi Manish & Saurav,
          My experience maintaing monthly budget:
          1. Intially i used to not maintain any thing budget liek that, so i do not have control
          2. then i tried managing monthly budget through Excel file. every month 1st i allocate budget, but i faced few issues with this mechanism.Apart from big recurring exp like rent,EMi, other thing tracking them is very difficult bcoz they occur at any day at any time(like groceris we will allocate 3k, but initially we will buy for 2k at once, then after that also small,small things we will buy under groceries. ).
          So almost i tire excel way to do for 6 months , but coluld not do.
          But now i have solution.
          The solution is i have Samsung galaxy Y(Budget phone), i use “Expense Manager” free app to track all expenses.
          Whenever i made a purchase i can simply add as mobile is almost always with us.
          I could do this from January without any small issue.
          Its very good method who can not update daily in excel files.
          This app has very good features, i can update if any one is interested.

          1. Veman

            yes . in your case its working because you have mobile all the time and you can track it live !

          2. bharat shah says:

            kindly update the features and price of the mobile, and also about“Expense Manager” .

            1. Hi Bharat

              These kind of applications are there in all kind of mobiles . If you are using any kind of smart phones (a little expensive one’s) , then you should be able to download the equivalent application for your phone . If you are using not so expensive one, even then there should be a minimilistic expense manager in that phone , explore it !


            2. Veman says:

              Hi Bharat,
              As manish said now a days many free apps are available are available on smart phones.
              The main point i want to highlight here is :
              1. Low cost smart phone with good features
              2. The free app i tried and found out is easy to manages.To be frank iam using only 60% features provided with this app, lot to explore.
              The mobile i am using is “Samsung galaxy Y”, it costs around 7500 Rs. (–&_r=rwHlo_LnbkucLW8hL4dCCg–&ref=79b920a3-ec5f-40f4-ae9d-481f3a77249b )
              The free android app i am using is “Expense Manager” from BISHINews.
              ( )

              For the features of the phone & free app you can refer the links mentioned above.

          3. Abhay says:

            I use Eqonomize software which I find very simple and intuitive.

          4. Abhijit says:

            Thanks for letting us know this nice app.

    2. psangani says:

      Saurav, I do not need to write again since my lifeline is also the same as yours..after marriage only I opened my eyes towards money savings..thx to my CA wife 😉 and I keep track in the MS Excel sheet for each month. The monthly budget should not exceed to a fix boundary..!!

      thx to Manish and the whole jagoinvestor is in my daily must visit site checklist 😉

      1. Saurav Sinha says:

        Hi Mr. Sangani, its gud tat U get professional help at home itself. Its not the same with me. And I tried maintaning my expenses in soft but cudnt do it somehow, its convinient to do it in a manually.
        It seems Ur from Gujarat. Where do you stay & what do you do?


        1. psangani says:

          Hi Saurav, yes m Gujju but now so called Bangalorean 🙂 and the city is well known for what?? and m into it… software consultant

          1. Saurav Sinha says:

            Im in Jamnagar since 2006, so could make out fromUr surname. GOD Bless U n every1… Happy Holi Manish, JI team & fellow JIians…

  39. George Joseph says:

    My thoughts are that,this ratio complements with the post on living with 90% of your salary. I believe a lot of money is squandered on retail therapy, and more conveniently on things that make up the junk compartment in any home.
    Manish, waiting to see you write an article about how to save money whilst shopping.
    Interesting link that i found for UK consumers is They basically say the techniques and the latest deals on how to reclaim plenty of money if we are just prepare in advance what we wish to buy.
    Wish something like this is published in India

    1. George

      Exactly . I have touched upon it lightly in one of the chapters of my book “jagoinvestor” . Making a list and then shopping can have huge impact for sure !

  40. karthik says:

    Hey Manish,

    Should we consider EMI for house loan as expense or saving?

    1. psangani says:

      just now i calculated mine and see car loan emi as expense..Manish correct if its wrong pl

      1. Yes Car Loan EMI will be considered as Expenses , but home loan EMI will be SAVING

    2. Saving , because its an investment which will build some appreciating asset

  41. Jassi says:

    sorry , typo errors 🙂

    Do you think Home loan EMI’s should be considered as part of savings. End of the day, an asset is being created?


    1. psangani says:

      I think home loan EMI should not be considered as savings..correct me if I’m wrong Manish pl

      1. Why not . It should be considered as saving . All the investments which result in creation of some asset (which are not depreciating in price) should be considered as saving only . Here by saving , I mean any investments + cash left at the end of the month OR Income – PURE EXPENSES


        1. psangani says:

          okay…!! yes thats nice way of clarifying ..thx

        2. ABHAI KUMAR says:

          Dear Manish,
          A more realistic albeit conservative approach would be to treat EMI as expense but an amount equal to the rent saved may be added to the income. No doubt an asset is built but it is an asset only if it is sold and money realised otherwise it is equivalent to the rent which otherwise would have been incurred in living in a rented property.

          1. yea , that way of looking at it makes sense !

    2. Jassi

      Yes .. it should be considered as saving for the reason you mentioned

  42. Charan says:


    Thanks for the wonderful artice. I will try to check my savings ratio periodically and figure out an action plan to increase it by cutting down on the unnecessary expenses.

    1. Nice .. what is your saving ratio at the moment !

  43. TS Ashok says:

    Hello Manish,

    Can we add HL EMI in savings??

    1. Yes .. please consider it as SAVING

  44. narenda ahuja says:

    I agree with you.
    I believe and have practised it also : I am seventy plus and am comfortable financially with my retirement even when I do not have pension. and post 14 years of my retirement.

    Earn Save and Spend ; and even if possible, again save

    Understand what is compounding of money in the long run; if possible, earn interest over interest like in PPF or PF

    Increase subscription in PF to more than staturoty 12 percent ; you can raise it to even 100 percent of your salary – few know it


    1. Thanks for sharing your views on this Narendra

    2. singh says:

      It would be great if you can give some more details regarding the VPF.
      Manish it would be really nice on your part if you can do a post on VPF. I know one can make voluntary contribution to EPF. But I have a few queries:
      a. Is there any statutory maximum limit under EPF Act or Income Tax Act? (I know max benefit available u/s 80C is 1 lac only & I am not talking about that)
      b. What is the rate of interest I will earn?
      c. Corpus received from EPF at the time of retirement or after a continuous service of 5 years is exempt from tax (both principal + interest). Is the same thing applicable for Voluntary part too? If this is true, then for salaried people it would be the best DEBT option. Since you get 9.5% or 8.5% tax free return. But from Bank FDs etc you get only 8, 9 or 10% but the interest is subject to tax.

      Thanks for all the informative posts.

      1. bemoneyaware says:

        My attempt in answering your questions:
        In EPF, an employee has to contribute 12% of his basic pay towards his provident fund account. An equal amount is contributed by his employer.
        1. Is there any statutory maximum limit under EPF Act or Income Tax Act?
        A. Apart from contributing the normal 12% of his basic pay, employee may choose to put in contribute more than this, voluntarily he can do so at any rate he desires upto 100% of basic and D.A. But the employer is not bound to contribute at the enhanced rate. Employer’s will contribute an amount matching only the 12%

        2. What is the rate of interest I will earn?
        2. The contribution will earn the same rate as normal EPF contribution.

        Corpus received from EPF at the time of retirement or after a continuous service of 5 years is exempt from tax (both principal + interest). Is the same thing applicable for Voluntary part too?
        Yes you do not even need to open a separate account. It goes into existing PF account

        Regarding whether it is the best option, it is good but whether it is the best for you depends on your asset allocation, risk profile etc.

        For more details you can refer to my post on VPF Voluntary Provident Fund, Difference between EPF and PPF

        1. singh says:

          sorry for late Thanks, but yes you have cleared all my doubts. Your post is also complete with details. Thanks for the info.

          1. Thanks it feels great to know that we could be of help to you. Thanks to Manish, JagoInvestor forum and its readers, we have learnt and intend to a lot from them.

  45. sonal panchal says:

    Hi Manish,

    Good piece of info.


  46. Tejaswi says:

    “How much of your income do you save?. By Saving, I mean any kind of savings which is left with you at the end of the month after expenses + the investments you do in different places (because even that’s part of saving only).”

    I didn’t get this point. Are you saying if a person earns 50K, of which 25K is his expense, 20K he invests in MF/PPF etc, then 5K is his savings?

    1. No , his total savings are 25k , even the investments are his savings only . the point is how much is your INCOME – EXPENSES

      1. Pankaj says:

        Thanks Manish,
        1] Should I consider MF SIP+PPF which I pay from take home (Income) as savings.
        2] Can I consider superannuation (policy premium paid by my organization)+ PF ( Company contribution+self contribution).

  47. Jerry Jose says:

    Yes you are correct. The income is not the measurement of ones wealth. But normally who has high income spend more. The standard of living also should be considered. A miser save more and spend less. But normal people spend for their daily needs and save for their future needs. The ratios may be changed person to person. If the expenses are not justified it is overspending. The financial needs also varying. Any thanks for this idea.

    1. Jerry

      Yes thats true . personal earning more will spend more and has potential to save more . but there are lot of people who dont save a lot and think that in future they will create a lot of wealth , which does not happen

  48. Ramesh says:

    Good one, but you should also inform what type of savings one should do. Also I would like to know that EMI for housing loan or any property should be considered as Savings or expenses as it burns my pocket today but still is for the wealth which is purchased and hopefully would give me some good returns in future.

    1. Ramesh

      Yes home loan EMI should be considered as Saving only.

      1. prabeesh says:

        I thought Home Loan EMI as expense and not a saving.

        How do you consider it as saving if the purpose of home is to live there and not to sel that in future

        Note:I will feel good if i add my home EMI into my saving 🙂 it takes my over all total to around 70-80% 😛

        1. Prabeesh

          Depends on how you look at it . I would say see it as saving/investment because it builds some asset at the end . Now you dont want to sell the asset and you might never sell it , but the thing is ITS there .. and its a asset . When it comes to financial planning , its suggested that you dont consider it as asset , but a lot of planners do and I would say for this purpose you can count it as saving only . because when a day comes when you are deep in cash crunch and life does not love you , then finally you can sell it off and have money .


          1. prabeesh says:

            Tend to agree with your points and it sure makes me happy 🙂

            I thought you were running out of ideas with some posts in last year,but with the recent ones you have shown you are back in form(or should i say never lost the touch :P)

            1. No no .. i am not out of ideas , but surely too much repetitve topics are there , what all kind of topics I can write on ? suggestions ?

            2. vignesh says:


              waiting for your review and clear explanation of the taxation of coming financial year after budget.

              i wish u need to be the first one to post that.

              you can also write about behavioural finance kind of things.

              All the best!!!

            3. Vignesh

              That can be written only once the budget comes .

              Regarding behavioral finance – I have written some topics which you will find useful


            4. vignesh says:

              Hi Manish,

              I will be very happy if you write on a topic

              “underperfromance of well performing funds and how to find out that with some previous examples”


            5. VIgnesh

              Will try to write on that soon . For now you can use our forum to get your answers on this topic


            6. Rajeev says:

              Just to let you know there are quite a lot of people like Vignesh who will be waiting for a Budget Special from you.

              I am just one of them.

              thanks in advance

            7. Rajeev

              Yes we will cover it , but we are not a budget expert anyways .. I will just talk about some top level points , thats all ..


            8. Mahesh says:

              HI Manish, Thanks for your Blog, it is really helpfull to lot of people in long run.

              Can you post some articals of buying a home on Home loan, how to calculate the ROI actual paid after calculating the incometax saved? can this property investment be used for child educastion by taking education loan against property in future etc.


            9. Mahesh

              Yes . loan can be taken on the home if there is no loan on that or very small loan on that ..

            10. Mahesh

              You can take the final value of the house and deduct the buy price and yearly expenses which you are incurring to find out the CAGR return its giving you.

              Home can be used for children education only if you are getting a steady income as rent out of it !

          2. Vijay says:


            EMI is divided in interest+Principal. So can we safely consider that 50% from EMI is saving and 50% is expense. If i am paying Rs. 20000 as EMI then i can count on Rs.10000 as saving as it is going towards building asset and other towards interest. Does it make sense? I agree with you that EMI should be considered as saving as it is going to save Rent for me.

            1. Vijay

              Yes that makes sense !

      2. Sanjay says:

        Dear Manish,

        I would like to slightly differ with your view regarding EMI to be considered as saving. Instead of complete EMI the principal repayment should be considered as saving as your loan amount reduces by that amount so in a way it is saving

        1. Yes , later i agreed that EMI principal part should be considered as saving !

  49. SG Verma says:

    So very tried and tested methodology. I think this is the true mantra for salaried class people to build huge corpus of money. Also, I would like to add that people keep running for earning big bucks but hardly spend time to sit and pen down on investing it. People spend hundreds of hours in a yr earning money but not even spend 10 hrs in a yr planning on how and where to invest money. All types of investment need deep research and lot of time/planning.

    Good Article Manish as always. Keep rocking !!!


    1. Yes SG Verma

      True that most of the people work hard to earn a lot but not so hard to invest it in proper way – which is the real thing they should concentrate on .

  50. Raja says:

    Nice post! And good to see you increasing your benchmark from 10% to 40% 🙂
    (I vaguely remember your post about, can you live with 90% of your salary).

    One observation i have is, being wealthy is also a lot about being recognized as wealthy in the peer circle rather than just being wealthy. And what are the ways to get that recognition? expensive possessions ! even if one doesn’t need them, being seen in right places etc etc… boasting about one’s expensive habits brings lot of attention among people and it’s hard to escape that!!

    You hardly hear people boasting about their MF portfolio size 😉 isn’t it ?

    I try to stick to 33-33-33 rule.
    33% for expenses
    33% for EMI payment’s on assets created via loans (surely this will go down with years passing, if I don’t create more assets on loan and can be split between expenses and savings)
    33% savings for future.

    Note: Also little search reminds me that your 90% post is almost 3 years old! So i’ve been reading your blog and about personal finance since 3 years now 🙂 almost became a habit…. he he he….thanks to you!

    1. Raja

      thats good point . A lot depends on person on how much he wants to be recognised as “wealthy” by the peers. I personally have no interest and need for my peers or group to consider me as wealthy , The only person who should be clear about it is me myself . while I cant say this is how every one should be , but whats the point if you are actually wealthy , but your peers dont know that or dont recognise that or dont appreciate it . how does it matter ?

      That 33-33-33 rule is good one . Some thing like this can be conceptualised into a model and made an article on that !

      How about 40-40-20 rule ? or 50-30-20 rule ? I think 33-33-33 will not be very much a fit for average cases ? Your experiences ?


      1. Geo says:

        Yes manish, because of desires you tend to spend more and save less, for me i for the last four years have decided to buy in cash, because of my mindset i could buy a house in cash, car in cash and many more i have been saving 40% or maybe more, its all mind set, change ur brain programming and see the change, i am competiting with myself.

        1. Great thought and action taken ! .. I am sure once you start controlling your actions on spending , results like you can be created ! 🙂

      2. Raja says:

        33-33-33 is more of a inspirational goal for me. I sure deviate from it but try to come back to it in long term. The idea is derived from an old mythological story i’ve heard from my parents. In the story the 33-33-33 is meant for children(future)-self(present)-parents(past). But in today’s world, i know, it will not work.

        So, in my modified version of the story, the asset that one can create with 33 can be left for future generation if we don’t need it before we die. 33 can always be used for consumption in the present including taking care of self/parents/children. and other 33 has to be saved for future for self use when one is not earning any more. These day’s we can’t depend on anyone at old age and roughly we may live 1/3rd of our life after earning phase (55-80) ? So, assuming the 33% of income saved now for roughly 1/3rd of our earning life (25-55?) grows at the rate of inflation or little more it should be ok to take care of that 1/3rd phase of our life period when we are not earning.

        For me this keep’s it simple even though little difficult to follow. It also has made me realize i don’t want to create more assets with loan in future as i want to live comfortably dividing that 33% into 2 parts of consumption and savings.


        1. hmm.. that makes sense ..

          I think the lives are so dynamic and so different from each other that this whole concept cant be standardised ! 🙂

        2. Abhay says:

          Hi Raja,
          Thank you so much for this wonderful concept! You have made my day.
          I definitely take your point

        3. Tarun says:

          Hi Raja,
          33-33-33 concept is really really good. Till now I am trying to maintain a 70-30 ratio (70 for expenses and 30 for saving) as I was treating my EMIs as my expenses. You gave it a new angle.


        4. Shravan Manyam says:

          Nice Strategy. Let’s forget to spend that 1% left for unprivileged lot.

          1. Raja says:

            Thanks Shravan,

            Do read the below article too. Even in giving that 1% away make sure it’s utilized in a good way…


  51. Again a good concept. In my opinion just by reducing expenses one can not remain wealthy if his saving is not invested in proper way. Due to time series of money value and inflation it is more important to invest his saving in systematicaly and properly.
    Expenses are broadly categarised in two types FIXED and VARIABLE. By controling variable expenses SAVING RATIO can be increased without increasing Income(salary), but with help of ART OF INVESTMENT one can increase his WEALTH more than others. So, we should not only concentrate on saving but proper investment of that saving also.

    1. Deepak

      Yes true .. investing the money in right way is very much important . Also other than saving more and reducing expenses, one also has to concentrate on earning more !

  52. Ram Mohan says:

    Hi Manish,

    Good food for thought, but I think saving 40% is a bit too much for most people. I think even if people do 20% savings that would a good start…

    Also, when you say a person earns 50,000 do you mean that as take home salary or gross salary? Should the % be on the gross or take home?



    1. psangani says:

      I think it is take home salary only

      1. Yes, for now you can consider take home salary only . But there is another way of looking at it , you can include your PF amount (which is not take home) and then see it saving only

    2. Ram

      the percentage will vary from people to people .. 40% is good , but even if 20% is saved , it would be great ! . In the article, I meant home take salary , not gross

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