Young earners with high incomes and few responsibilities can save more than 30 per cent, while those with low salaries and high expenses may save less.
Why has saving become difficult?
Social media fuels lifestyle pressure by showcasing others' lavish travels, homes and cars.
It prompts people to spend to avoid FOMO (fear of missing out). Social norms have altered as well.
"Earlier, saving was a virtue. Now, spending, and not saving, has become the new normal," says Arnav Pandya, founder, Moneyeduschool.
E-commerce and quick-commerce platforms encourage impulsive spending, while easy digital credit and EMI options lower the barriers to borrowing.
Some struggle to save due to income constraints.
"Income levels for many young earners have not risen significantly.
"On the other hand, the cost of living, especially rent, has risen sharply in major cities," says Deepesh Raghaw, a Sebi-registered investment adviser.
Why start early?
Starting early helps form the saving habit and makes it easier to save more as income rises.
Early savers also benefit from compounding.
"Time is the most important variable in compounding.
"If you delay by even five or 10 years, you may need to save a much bigger amount to build an equal corpus," says Vishal Dhawan, founder and CEO, Plan Ahead Wealth Advisors.
Beginning early fosters patience.
"The power of compounding becomes visible only after 12 to 15 years.
"A person who has begun to save early is more likely to develop the discipline to invest and wait," says Pandya.
Build an emergency fund
Unexpected events -- accidents, job losses, or medical crises -- can force people into borrowing in the absence of an emergency corpus.
"An emergency fund also allows investors to participate in more volatile assets (like equities) without having to depend on them during a crisis," says Dhawan.
Maintaining this buffer allows the compounding in long-term portfolios to continue undisturbed.
The size of the emergency corpus should vary by family structure and income stability.
"For dual-income households, six to eight months' expenses may suffice. A self-employed person may need 12 to 18 months of savings," says Raghaw.
Keep one month's expense in a savings account and the remainder in a sweep fixed deposit account, liquid funds, or arbitrage funds.
How much should you save?
A broad thumb rule is to save 30 per cent of take-home salary.
"The right percentage should be determined by listing one's financial goals and then working backwards to see how much saving is needed," says Dhawan.
Young earners with high incomes and few responsibilities can save more than 30 per cent, while those with low salaries and high expenses may save less.
The savings rate may decline as responsibilities grow, but should not dip below 10 per cent.
Once responsibilities like children's education are met, one should endeavour to save more.
Tips to become a regular saver
Saving before spending should become your mantra.
"Maintain two bank accounts -- one for investments and one for expenses.
"Your salary should flow into the investment account.
"Once investment has been made, the balance can be shifted to the expense account," says Dhawan.
Automate savings to inculcate discipline.
"Automating savings removes dependency on memory, willpower, or emotion," says Pandya.
Budget for fixed and discretionary expenses, along with a small "joy budget" of 5 to 10 per cent, to prevent overspending later due to a feeling of deprivation.
Mistakes to avoid
Delaying the start of saving is a common mistake, as is waiting to accumulate a large amount before starting to save.
People also overestimate future income growth.
Another mistake is assuming that the systematic investment plans they run are sufficient.
"Financial planning can reveal the gap and determine exactly how much they need to save to hit their goals," says Raghaw.
Tips for 1st-time earners
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Feature Presentation: Ashish Narsale/Rediff