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Ways to save money for salaried professionals

dateKnowledge Centre Team dateFebruary 22, 2021 views168 Views
Ways to save money for salaried professionals

The approach of a salaried individual to save money is different from that of a self-employed or businessman because salaried professionals have fixed monthly income, unlike the latter. Due to this, they have to manage savings and investment with their expenditure within a stipulated income. The most effective way to save money is to invest money in a money-saving plan.

Ways a salaried professional can save money

Salaried individuals need to consider time, risk, income growth, and return expectations as per their income while determining the best saving plan in India for them. One of the biggest challenges for these people is to control spending. The more control on spending, the more money can be saved that will eventually benefit the individual in the future.

Here are some of the ways a salaried professional can save money:

Getting a health insurance policy -

Many people wrongly take any term insurance policy such as a health insurance policy as a money waster, but the reality is that the policy can benefit a salaried professional in saving money if the policy is chosen carefully. It is evident that diseases and accidents come without an invitation, and nowadays, people are becoming more vulnerable to diseases whose treatment leaves with a huge medical bill.

Therefore, it is better to spend some money in paying premiums of the health insurance policy than paying large amounts of money in the treatment of unexpected hospitalization. The current expenditure of the average Indian working class on healthcare is Rs. 1500 per month; some money can be saved by investing in the health insurance policy.

Current Expenditure Option Available Option Available
Rs. 1500 per month spends on healthcare Rs. 1000 per month on health insurance Rs. 500 per month

There are several other ways by which a salaried individual can save money such as, cutting down on energy bills, reducing entertainment expenses, prudent grocery shopping, smart online shopping, cutting down on transportation and telephone bills, etc. However, the best way to save money by not compromising with the basic needs is to invest in a money-saving plan. It will not only save money, but some plans can benefit you with their returns and tax benefits also.

Best money-saving plan in India for salaried professionals

Choosing the best money-saving plan is not a light task; one needs to do a proper analysis of each plan’s risk, returns, etc., before finalizing the plan. A salaried professional is most likely to choose the one that provides tax benefits too.

There are many options available in the market, and here are some of the best money-saving plans in India that a salaried professional can opt for:

1. ULIPS

Unit linked Insurance Plans (ULIPS) is a type of life insurance plan that provides safety of insurance protection with the opportunity of wealth generation. In this plan, a part of the investment goes towards providing life cover, and the rest is invested in a fund that invests in stock or bonds that eventually provides benefit. It is considered the easiest and best investment plan in India for a person to enter the stock market with the additional benefits of life cover.

Benefits of investing in ULIPs

  • Life cover

    ULIPs will provide the benefit of a life cover coupled with investment. The life cover will benefit the family of the taxpayer in case of their untimely death.

  • Income tax benefits

    For a salaried individual who seeks life cover with additional tax benefits, ULIPs can be the best choice. Under Section 80C, the premium paid towards a ULIP is eligible for a tax deduction. Furthermore, the returns out of the policy on maturity are exempt from income tax under Section 10(10D) of the Income-tax Act.

  • Long term goal benefits

    ULIP is a good investment option to save money to finance long-term goals like buying a house, a new car, marriage, etc. The best returns will be generated if the policy is kept for a longer time.

  • The flexibility of a portfolio switch

    ULIPs are usually designed in a way that allows the policyholder to switch the portfolio between debt and equity-based on risk and knowledge of the performance of the market.

2. Endowment plans

An endowment plan is a regular money-saving plan that helps build a corpus and give guaranteed maturity benefits along with bonuses. The endowment policy is a kind of insurance plan designed to provide life coverage protection and the chance to grow wealth through systematic savings. It is one of the best investment cum money saving options available to people looking for insurance cover as well as investment and savings plans in India.

Benefits of endowment plans

  • Better returns

    One of the most important policy benefits is that it offers better returns on investment than fixed deposits or simple life insurance policies.

  • Tax benefits

    This plan is a good tax-saving option as they are tax-free. Under Income Tax Act, Section 80C, endowment plans have some tax benefits on the annual premium, and under Section 10(10D), the maturity claims of endowment plans are completely tax-free.

  • Accidental riders

    Endowment plans provide the option to policyholders to add accidental riders to further enhance the cover by paying a marginal premium.

  • Short-period premiums

    These plans are ideal if one wants to pay a premium for a short-period and wants to benefit from the plan over the policy term.

  • Liquidity

    These plans are liquid. In case the insurance carrier survives the policy term then, the sum assured amount and other bonuses accumulated during the term period are also paid further. And if the policyholder dies during the policy term, then the death benefits are paid to the nominees; the benefits include the full sum assured amount and additional vested bonus.

3. Money-back plans

Money-back plans are very popular insurance policies as they offer the dual benefit of insurance and redemption of money at regular intervals. These plans are mostly opted by the individuals who require money at certain intervals of life to meet short-term as well as long-term financial requirements.

In this plan, a portion of the sum assured is paid back at regular intervals. If the policyholder survives the policy term, then the policyholder will receive the balance sum assured in the best saving plan in India. And in case if the policyholder dies during the policy term, then the beneficiary or the nominees will get the full sum assured irrespective of the payouts already made.

Benefits of money-back plans

  • Protected savings

    The returns in money back plans are guaranteed, and thus savings in this plan remains safe as the premiums paid are not linked with the ups and downs of capital markets that offer uncertain returns.

  • Life insurance

    This money-saving plan also provides life insurance cover. In case of death of the insurance carrier, the nominees get the full sum assured amount.

  • Tax savings benefits

    Under Section 80C, all life insurance premiums under the money-back policy are eligible for tax deduction up to the specified limit, as long as the premium is less than 10% of the sum assured. However, the maturity amount is exempted from tax deduction at source as long as the sum assured is more than five times the premium paid for the policy.

  • Secured investment

    Money-back plans are a good way to make an ideal investment. Further, money back plans help to guard against the risks to a certain king of funds.

4. Monthly income plan

A monthly income plan (MIP) is a type of mutual fund strategy that generates stable income through dividend and interest cash flow. The plan aims to provide a steady stream of income that is suitable to retired persons or senior citizens who do not have other substantial sources of monthly income. However, the monthly income plan is prone to market risks, and the investor can expect a seedy stream of income when the market is strong but could face downstream bear markets.

5. PPF/EPF

PPF (Public Provident Fund) is a central government scheme meant for both salaried and self-employed individuals. It aims at offering old-age financial security to self-employed individuals and workers from unorganized sectors.

PDF (Employee Provident Fund) is a scheme designed exclusively for salaried professionals. Under this scheme, the employee and employer contribute 12% (or the minimum of Rs. 780) of the salary amount every month. Both PPF and EPF are eligible for tax exemption under Section 80C. This money-saving plan is a must-have option for salaried professionals of the private sector.

A salaried professional needs to save money to achieve short-term and long-term goals. Keeping the risks in mind, one should determine the best money saving plan as per the requirement. Many plans offer dual benefits of life coverage and wealth generation as well that are the best choices for salaried individuals.

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Frequently Asked Questions

What is saving plan?

A savings plan is likely to be different for everyone depending on the financial goal, risk profile, returns, and investment horizon. If you are young and want to save for your retirement, ULIPs like Invest 4G or Titanium Plus plan would be the best option. You are likely to create a large corpus by your retirement through market-linked returns if you invest in this savings plan. If capital protection is your aim, then traditional insurance plans such as Guaranteed Money Saving Plan should be suitable for you.

Who should invest in a Savings Plan?

If you are looking for a guaranteed income plan, then saving plans should be on your list of investments that you are planning to make. Savings plan require you to invest a pre-decided amount on a regular basis. People with a regular stream of income who require a lump-sum amount after a period should opt for a savings plan. Working professionals, self-employed people and businessmen should consider a savings plan to meet their long-term financial obligations. Saving plans are also ideal for people who are risk-averse and want to accumulate funds through relatively safer mediums. These saving plans inculcate financial discipline in policyholders which make them crucial for every portfolio.

How much money should you put in savings each month?

The amount that should be invested in a savings plan each month depends on the income, existing financial obligations and the long-term financial goal. If you have a steady income, you should save at least 20% of your monthly income. It is not necessary to invest your entire money into a savings scheme as investments should be diversified. Ideally, you should aim to have a financial buffer of over 10 times of your annual income. Choose an income plan based on your financial circumstances to stay afloat.

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What is the difference between saving and investing?

Saving is the money that you keep aside for emergencies or for buying any big-ticket item. Investing means growing or multiplying the wealth that you have by buying savings plan, or any other assets. Buying a savings plan will help you in achieving your investment goals such as retirement, your child’s higher education or marriage, or for buying a new house.

Which savings plan is best for retirement?

The Invest 4G plan with its multiple investment options and various portfolio management strategies for capital protection is an ideal saving plan for retirement. Also, Guaranteed Income4Life is also another savings plan that you can consider for building your retirement corpus as it acts as a guaranteed income plan that will provide you maturity benefits to manage your post-retirement expenses.

Which savings plan is best for long-term goals?

Smart Goals Plan is a savings plan with its unique features such as modification of the sum assured partial withdrawal and fund switch can help you plan for your long-term financial goals. Canara HSBC Oriental Bank of Commerce Life Insurance offers a wide variety of saving plans that you can invest in as per your risk appetite and investment goal.

Which savings plan is suitable for girl child?

The Future Smart unit-linked plan from Canara HSBC Oriental Bank of Commerce Life Insurance is the ideal savings plan for the girl child. Monthly Income Advantage Plans are also a good option if you are planning to invest in a savings plan for your girl child.

Where should I invest my money?

You should spread your investments across financial instruments. However, having the best savings cum guaranteed income plan in your portfolio is extremely important. Savings plan ensures financial stability and also helps in fulfilling short, medium and long-term monetary goals.

What is a monthly income advantage plan?

A monthly income advantage plan ensures that you lead a stress-free life with your loved ones as it provides a life cover along with giving you guaranteed monthly income. In short, it is a life insurance and income plan that will financially secure commitments made to your loved ones. Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Income Advantage Plan is a monthly income advantage plan that provides life cover for the entire term while you pay premium only for a limited period.

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What is a good age to start saving money?

When you plan to invest in a financial product, it always pays well to start early. The earlier you start saving and investing, the better. When you start investing early, the capital gets adequate time multiply. Even a small amount invested for a long time can give substantial returns due to compounding in a savings plan. Invest in an income plan as early as possible to build a significant corpus that will later help you in life. Ensure that you buy the best saving plan in India that can be aligned with your investment goals.

Should you use a savings plan for retirement planning?

Yes. Retirement planning is one of the most important financial decisions of our lives. The best saving plan offers a host of features that may help you build your retirement corpus. Some of the saving plans like Guaranteed Income4Life offer guaranteed returns at policy maturity. Such returns can act as a regular income stream even after your retirement to help you stay financially stable.

Are saving plans beneficial for managing unexpected expenses?

Yes. Best saving plans in India offer partial withdrawal system that can be utilized during your rainy days. Being financially prepared to tackle such odds will help you manage any unforeseen expenses in a smooth manner. Buy a monthly income advantage plan that will generate a steady source of income for you to take care of both long-term and short-term financial goals.

How to save tax by using savings plan?

Saving plans are known for helping us achieve our financial goals. Best saving plans allow you to grow your wealth while providing life cover. Saving and investment plans are also beneficial for tax planning. Premiums of savings cum protection plans come with tax benefit under Section 80C of the Income Tax Act. Moreover, proceeds received upon the death of the policyholder or upon the maturity of the policy are tax free under Section 10 10(D).

What is the right age to start saving money?

When you plan to invest in an income plan, it always pays well to start early. The earlier you start investing in a savings plan, the better. When you start investing early, the appreciation in capital is significant. Even a small amount invested in the best saving scheme for a long time can give substantial returns due to compounding. Buy the best savings plan as soon as you start earning to achieve all your milestones on time.

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How a savings plan can help in building your child’s education fund?

Saving plans help in building wealth over time against the investments that you make. Buy the best savings plan to build an education fund for your child. The best saving plan for kids offered by Canara HSBC Oriental Bank of Commerce Life Insurance eases the stress of planning your child's future by providing a lump-sum payout on the investment. Consider investing in a monthly income advantage plan to assist you in fulfilling your financial goals.

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How Savings Plans by Canara HSBC Oriental Bank of Commerce Life Insurance can help you?

Every person has a unique reason to save and invest. With ULIP savings schemes, the company caters to people seeking wealth creation through capital appreciation. Contrarily, the traditional plans can help you save for important life goals without worrying about the fluctuation in fund value. All major savings plan offers partial withdrawal facility that can help you take care of unplanned contingencies. With savings plans from Canara HSBC Oriental Bank of Commerce Life Insurance, you get adequate flexibility while investing and receiving the savings benefits, which makes them a good investment choice for investors looking for income plans.

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