Living Paycheck to Paycheck? Solution: Treat Savings as Monthly Bills

A reader (whom I will not name to protect his identity), shared his question in the Financial Concerns Survey:
I am unable to save any money. It is really tough. And it is not that I don’t know the benefits of saving or investing. But even then, I am not able to do it. Every month, all I can manage is to pay my ever-growing bills. Nothing more.
And in past few years, the regular payments I have been making to repay Credit Card debt has also been rising steadily. This once again adds to the fixed monthly bills I have to pay.
How do I get out of this cycle of living paycheque to paycheque? How do I start saving for future?
Now this is a very common personal financial concern. How to save? Leave alone investing. Lets keep it very simple for now. How do we just start saving?

Lets see what exactly is happening here…
This person gets his salary every month. He pays out EMIs (car loan, housing loan, etc.). He purchases all the regular household essentials required for home. He pays fees for his kids. He pays his Credit Card Bills. He takes out his family twice or thrice every month for outings and entertainment.

And then…month end comes. 

He checks his bank account and as usual, is disappointed to see a very small percentage of his monthly income remaining in his account.

He resolves to be a better spender next month. He resolves to save and invest from next month. And this has been happening for quite sometime now.
This was just a sample of how his money flows in and out every month. It can be different for different people. But this gives a rough picture of what generally happens every month in households.

But important point to note here is that the intention of saving (and investing) comes after all making provisions for all the known expenses.
And theoretically speaking, it is wrong.
I know it is easy for me to say it because I am just writing about it. But when one gets bills every month, the first reaction is to clear it off and then think about saving anything.

But you need to understand. Bills are there because of your past actions. But savings are there for funding your future actions.

You can continue denying that you don’t have money to save, after you have already spent all on other expenditures.
But isn’t the responsibility of securing your future rest with you?
I think it does.
Nobody will come and tell you to save and invest for your future. As for writers like me, we will only try to help you get convinced about it. But that is the maximum we can do.
Eventually its you who needs to find a way to save…no matter what. Think of it. You can choose not to save.

But if you don’t, then after some years when your non-earning life starts, how will you find the money to survive? Who will pay for you and your health?
Now you must be getting the picture I want to show you…
Nobody wants to start their retirement with less-than-sufficient amount. And just think of it….what will you tell yourself when you are 60 years old?
‘I could not save when I was young because I was busy spending money on things which were not worth spending on.’
Couldn’t have been sadder than this…
So what can you do? Or rather what should you do to change all this?
I have some thoughts which I think you can tweak according to your own situation and use:

Step 1: Change Your Thinking
I have written about this earlier also in this article, and am doing it again. You not being able to save money, is your own problem. Nobody else’s.
But who will be affected by it?
You (in your future).
So you need to tell yourself that you will do it. You will save every month. And even if it means that you need to cut down on few expenses.
Step 2: Treat Savings as Monthly Bills
Surprised by this statement?

But I am telling you that you won’t be able to save unless you start treating your savings as monthly bills. Bills, which cannot be defaulted. Think of it as something which if you don’t pay, someone will come after you. Just like loan recovery agents.
I know its tough. In case of loan EMIs, you have signed legal contracts, which forces you to pay up every month. But you need to think on same lines when thinking about saving. 

You need to come up with an imaginary legal contract, which forces you to fund your savings every month. Think of it as your monthly savings is your additional EMI.

Step 3: How much to save?
Now this is something which only you can answer. You need to honestly evaluate your current expenditures in details. You need to figure out whether there are some expenses which you can avoid? 

For example, if going out with you family everytime costs you around Rs 1500, and you go out about 4 times a month…can’t you reduce it to 3 times a month?
That will release an additional amount which can flow into your savings?
And I am telling you, that every month there are some miscellaneous expenses which are recurring in nature. But these expenses are more about greed (desires) and less about needs. Generally, some of them can be eliminated. So do this exercise. Have a look at all your expenses for past few months and I am sure you will find some expenses, which you now will find were totally unnecessary.

Step 4: How to do it exactly?
The first thing you need to ensure is that you have about 6 months worth of expenses with you as Emergency Fund. If you don’t have it, then it’s a big mistake. You can never be sure of what might happen tomorrow.
And if in case of emergency, you have to sell your investments, then you will break the process of compounding – simply speaking, you would not become as rich as you could have become.
So lets divide the word Savings into 2 parts:
Savings & Investing.
Right. These are not same. Saving is for short term and Investing is for long term. Personally for me, anything less than 5 years is short term.
So this is what you do exactly:
  1. Start putting some money aside every month in a recurring deposits. Keep on doing it till you have about 6 months worth of expenses saved in it. This is your Emergency Fund.
  2. Once you are done with the above or are close to achieving your 6-Months Emergency Fund, try saving some more amount in Fixed Deposits or Recurring Deposits. I know a lot of people will be against this approach as I could have very well suggested going for mutual funds. But I don’t consider Emergency Funds as Savings. So once you are done with accumulation of your Emergency Fund, you still do not have any savings. Right? So you need to save.
  3. Now once you have accumulated money in your emergency fund and in your savings, time is right for moving on to investing. Investing is what you do when you don’t need the money for more than 5 years. It is done for long term goals like Retirement, Children’s education etc. You can start with a small SIP. And slowly and steadily, keep increasing your SIP amounts every year.
  4. Frankly, a very small SIP may not be able to help accumulate large amounts of money for retirement. But over a period of time, as and when you reduce your unnecessary expenditures and your income also rises, you can increase your SIPs and see its amazing rewards. It can even help you pre-pone your retirement plans! Isn’t it a dream come true?

I have already written quite a long piece. So I better conclude it now… 🙂
So here is another fact which will deter you from starting. When you take the above approach, its possible that you will be demotivated to see the slow pace of savings and investments growth. But don’t worry. This starts slowly but eventually snowballs into something big. 

Another thing which might come to your mind is that you should rather start saving and investing, when you are free from you’re your loan EMIs.

Personally I don’t think that it is advisable to do it. No matter how small the savings are, please start it even if you have a loan running. By not saving early, we pay a huge price by accumulating a much smaller corpus than what would have been possible, had started early.
So that’s it from me…
Do share your thoughts on treating Savings as a monthly bill and SIP as a monthly EMI. Or if you think this approach can be tweaked or if there are any ways of increasing savings, then you can share those too.


  1. “Treat saving as your monthly bill” – what a powerful statement! It is yet another innovative way of saying what Warren Buffet has said
    Once you understand the meaning of this statement, your life will change.

  2. I think today's generation (born after second independence of India i.e. 1992) has started living and behaving very differently. These people have not seen economy of scarcity which people of my generation have seen. (Though even I am not too old!). We are in dangerous times. Once this generation reaches the retirement age, our country will be grappling with a new set of problems. It will be full of people who have lived a good life in their youth and will not have money to survive then. All of this is fueled by plastic money and marketing techniques of MNCs from western world. We are all forgetting that most developed western world has some sort of social security. India has none. We are copying their lifestyle in terms of spending patterns without realising the future repercussions.

  3. Not knowing the profile (age/income etc.) of the person, here are some things that have worked for some of the people I know:

    1) Clear the credit card dues. Then either trash the credit card, OR go for a limit that is very small (like 20K). Large credit cards are #1 reason for financial issues. Large credits are NOT fashion statements. It makes you look rich, but it makes the banker actually rich!
    2) Savings = Income – Need – Wants. Calculate your income/needs/wants for the past one year
    3) Savings have to be at least 20-25% (in a country like India) of gross salary. So cut down “wants” until you get 20-25% savings. This has to be more if you are older
    4) If you are not able to get to 20-25%, then there is something wrong with your lifestyle. You are living beyond the means. Irrespective of what society tells you, you perhaps don't deserve the house/car/holidays/outings etc. Downgrade. Smaller car vs. larger car. 2-wheeler vs. a car (although I don't recommend due to safety reasons). Eat at home (has tons of health benefits too). Move to a smaller home. India vacation as opposed to foreign. Move to a middle-class area from an upper-class area. This would work wonders since the peer group won't focus on flaunting things.

    Sacrificing lifestyle in late 40s/50s to build savings DOESN'T count. Sacrificing in 20s and 30s REALLY counts. Although no one can see, your growing net worth will give you the best sleep as opposed to a larger car/house/show-off items etc. The pot that you invest has to carry you around for perhaps 30-40 years after retirement. That deserves #1 attention.

    Subra ( said it best. Savings = Income – Ego.

  4. Those are some very valid concerns Girish. And even I agree that a majority of people in my generation are slaves of their unnecessary expenditures or of huge home loan EMIs.
    The very definition of investing for them is very different from what the reality is.

  5. Thanks for sharing your views Govar.
    And I must say that these are some real lesson-type views for whoever reads them. And you have hit the bull's eye when you say that sacrificing lifestyle in 40s and 50s does not have much impact. Its actually the actions taken in your 20s and 30s which can be the game-changer in financial life.

  6. Very well said about cards. I own a CC for last 20+ years and proud to state that I have not let my bank earn even a rupee from me. Though sometimes I have forgotten to pay my bill in time and these guys did levy a penalty but I got it waived because of my good track record.

    And the so called Largest credit card has been behind me since years but I never took their card. A workable CC with zero annual fee and no frills is good enough for emergencies and convenience.

  7. Very nice article Dev. I just wish to add some more beautiful words supporting your step: 2 and number 1 point of step: 4.
    1st Step: 2: I think Dev you have revealed amazing truth and reason to become savers and investor. Actually, if you see deep down, you will find that future is always unpredictable and maybe horrible, if you do not have any emergency fund or savings. So we have to take that as a compulsory EMI of our future. You see when we are paying our bills, that is we are paying for our past, which has already gone. Many times I have noticed that paying for our past makes us regretful. So to avoid this kind of nasty feeling, all we can do is start giving first priority to future and pay 1st for future then past. So actually it is more important then electricity bill or water bill, because end of the day you will have those essential services available only if you have contribute something for future.
    2nd Step: 4, point 1: I have noticed that if I am doing myself constantly for 6 months, it becomes habit of my life. So if we save continuously for 6 months (to raise emergency fund), it will become habit, like habit of drinking tea or habit of reaching at work at 9am, etc. Now once you successfully create this habit, do not stop, continue. the fund that you will generate after 6th month, count that fund as your saving and after 18 moths count that your investment (for long term), because now you have adjust yourself without that portion of money, so basically you do not need that and so you can invest for long term.
    I hope I have tried to send my message successfully, But best luck to all.
    Thanks Dev for small but powerful article. Usually I am not used to get small article from you, as your articles are always long (good way :)) and researchful.

  8. Those were some interesting thoughts Saurabh
    Thanks for sharing them with us. And I am little surprised to know that this seemed like a short article! 😉
    I was actually thinking of reducing its length when I wrote the first draft.

  9. Hi dev

    Thank you for such a thoughtful write-up.

    Please could you suggest 3 good diversified mutual funds and 2 ELSS MF's to start investing in.


  10. This article is nice. Here are some tips from the guy who generated savings from the similar bleak situation. Some of them advised to cut short life style (moving to 1 BHK from 2 BHK, Car to Bike etc..) which is possible with great effort but not a practical solution to many. Here I go.

    Unplanned expenses : This is common problem for many. Fesitvals, Visit to native places for some reason or other, Guest arrivals, Relative and friend events, visit to Doctors take away lot of money. I kept aside some decent money (50 to 100K) in separate account and would withdraw only for these purposes if I don't have money in regular account. Once used, pay back to this account next month.

    Start small in savings : Don't aim 10-30% savings each month. If some one is unable to save, start with 2-3% savings. I didn't use Debt or Equity MFs. Just opened a RD with 1000 a month for a year. It felt so happy to save 12K at the end of first year. This initial success and maturity amount would trigger many ideas and could ruin all the achievement quickly. Continue to keep it simple and nothing is more important than to maintain the same if not more. Let me be honest, in the last 5 yrs, my expenses shot up each year on account of several factors including inflation (second kid arrival, toys and dresses, monthly school fee for elder kid, tuition for the elder kid, groceries cost, home renovation and what not). If you have aged parents, costs would only go up each year. As a result of all these things, am saving same amount as that of 5 yrs ago. Not able to set aside more than 1K each month. It is a reality and got to accept the limitations.

    I can go on with many other tips but guess mentioned the two top most.

  11. Joey
    I still don't have an IA license from SEBI. So I will not get into the specifics.

    But you can do a fund comparison for funds which have been here for some time (around 10 years and hence proven in both bull and bear markets), respectable pedigree (fund house and manager), decent returns (not necessarily the top fund in each year). And also its very important to have reasonable expectations from your funds. A fund can deliver 25% + return in one year. But expecting it to deliver the same return every year for 10-20 years would be wrong. I think only Buffett could manage that 🙂

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