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:
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.
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.
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.