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How Much of Your Paycheck Should You Save? Budgeting Basics for Gen Z

Budgeting Basics for Gen Z
September 22, 2023


“Your generation doesn’t know the value of money!”If you belong to the Gen Z bracket, chances are pretty high that you keep hearing this from your parents, right? And this is because the generation your parents belonged to, had an entirely different view towards life.

While the earlier mindset of living frugally and saving up for children and future generations worked for our parents, Gen Z is more inclined on taking life as it comes. Keeping mental health and meaningful work as top priorities, they keep spending on things that would make them enjoy every passing day. Lavish holidays, trendy gadgets, swanky cars, hangouts at posh eateries—the list is endless. But despite that, it’s important for this generation also to prioritize life goals and make a financial plan that would keep their future on a smooth track.

The ideal financial strategy for Gen Z, who are mostly in the early stage of their career, should focus on inculcating in them a habit of savings and making them value money. Thus, at this point, investing in plans with a guaranteed return can always be a safe bet, be it a one-time investment plan or a long-term investment. Here a good insurance plan with a return of premiums option can indeed be a fruitful choice. In addition, this can be beneficial for tax savings1 as well.

So, how much money out of the pay check should be saved?

Going by the income allocation pattern of our parents’ generation, the 50-30-20 rule can be a wise pick for Gen Z as well. According to this thumb rule, 50% of the income should fund the needs, 30% should fulfil wants and the remaining 20% should be kept for savings.

However, there’s nothing to worry about if you’re at the starting point of your savings journey. Experts say, there’s also a 20/10 rule of financial plans which should be kept in mind. According to it, the total debt should not exceed 20% of the annual income while the monthly outstanding amount should not cross 10% of the monthly salary. 

There are a few basic tips that can be helpful here.

  • Having a long-term financial goal is necessary. It would automatically help you spend wisely and manage savings in a way so that the goal is achieved.

  • A bit of cost-cutting can be useful. Putting a check to your credit card bills is an easy way out here, that would eventually take you out of the debt loop.

  • Setting medium-sized financial goals is an achievable task. No point in overburdening yourself with unrealistic targets.

  • Save strategically for tax deductions to enjoy your earnings. Investment plans with tax benefits1 are wise picks.    

  • Make sure you are adequately covered by life insurance. Put aside money in a one-time investment or long term investment in a sound term insurance plan that will provide for your family and dependents in the future, if you are no longer around.

  • At the start of your career, retirement plans are not a priority for many. But it’s advantageous if you start early and reap the benefits in full when you reach your retirement.

Rest will indeed fall into place!

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ARN - ED/08/23/4254

  1. Tax benefits are subject to conditions under Sections 80C, 80D, Section 10(10D) and other provisions of the Income Tax Act, 1961.

This material has been prepared for information purposes only, should not be relied on for investment, tax or any accounting advice. It is requested to seek advice of your financial advisor with respect to any investment or financial decision.