How much you can save from your salary

Saving money from your salary is crucial for financial stability and future planning. The amount you can save largely depends on your income, expenses, and financial discipline. This article provides a detailed analysis of how much you can save from your salary, using practical examples.
Understanding Your Income and Expenses
- Gross Salary: This is your total earnings before any deductions. For instance, let’s assume a gross monthly salary of Ksh 80,000.
- Deductions: These include taxes, pension contributions (NSSF), health insurance (NHIF), and other mandatory deductions. Let’s estimate total deductions at 20%, which equals Ksh 16,000.
- Net Salary: This is the amount you take home after all deductions. In our example, the net salary would be Ksh 64,000.
Budgeting Your Expenses
To determine how much you can save, you need to categorize and budget your monthly expenses. Here’s a breakdown of typical expenses:
- Housing: Rent or mortgage payments are often the largest expense. Assuming 30% of the net salary goes to housing, that’s Ksh 19,200.
- Utilities: Electricity, water, and other utilities might cost around Ksh 5,000.
- Transportation: Costs for public transport or fuel and maintenance for personal vehicles could be around Ksh 6,000.
- Food and Groceries: Budgeting around Ksh 15,000 for monthly food and grocery expenses.
- Communication: Mobile phone and internet expenses could be approximately Ksh 3,000.
- Insurance: Health, life, or property insurance might cost about Ksh 4,000.
- Entertainment and Leisure: Allocating Ksh 5,000 for dining out, movies, and other leisure activities.
- Savings and Investments: Aiming to save at least 10% of your net salary, which is Ksh 6,400.
- Miscellaneous: Setting aside Ksh 5,400 for unexpected expenses.
Calculating Potential Savings
Let’s revisit our net salary of Ksh 64,000 and allocate it according to the budgeted expenses:
- Housing: Ksh 19,200
- Utilities: Ksh 5,000
- Transportation: Ksh 6,000
- Food and Groceries: Ksh 15,000
- Communication: Ksh 3,000
- Insurance: Ksh 4,000
- Entertainment and Leisure: Ksh 5,000
- Miscellaneous: Ksh 5,400
- Total Expenses: Ksh 62,600
Given these expenses, the potential savings would be:
Savings: Ksh 64,000 (Net Salary) – Ksh 62,600 (Total Expenses) = Ksh 1,400
This basic budgeting shows that you can save Ksh 1,400 monthly. However, aiming to save only this amount is minimal; it’s advisable to target higher savings by adjusting some expenses. Let’s explore strategies to increase savings:
Strategies to Increase Savings
- Reduce Housing Costs: Opt for affordable housing. For example, if you can reduce housing expenses to 25% of your net salary (Ksh 16,000), you save an additional Ksh 3,200.
- Cut Utility Bills: Implement energy-saving measures to reduce utility costs by Ksh 1,000 monthly.
- Limit Transportation Costs: Use public transport more frequently or carpool to save Ksh 2,000 monthly.
- Lower Food Expenses: Cook more at home and reduce dining out, potentially saving Ksh 5,000.
- Minimize Leisure Spending: Cut entertainment and leisure expenses by Ksh 2,000.
- Shop Smart: Use discounts, buy in bulk, and avoid unnecessary purchases to save on groceries and other expenses.
By implementing these strategies, you can significantly increase your savings. Let’s see the revised savings calculation:
- Housing: Ksh 16,000
- Utilities: Ksh 4,000
- Transportation: Ksh 4,000
- Food and Groceries: Ksh 10,000
- Communication: Ksh 3,000
- Insurance: Ksh 4,000
- Entertainment and Leisure: Ksh 3,000
- Miscellaneous: Ksh 5,000
- Total Revised Expenses: Ksh 49,000
Revised Savings: Ksh 64,000 (Net Salary) – Ksh 49,000 (Total Revised Expenses) = Ksh 15,000