Why Most Indians Fail to Save Money – Bad Habits & How to Fix Them

Ravi, a 35-year-old IT professional from Bengaluru, recently faced a financial crisis when an unexpected medical emergency arose. Despite earning a comfortable salary, he found himself scrambling to cover expenses, realising he had no substantial savings to fall back on. 

Ravi's situation isn't unique. A survey revealed that 75% of Indians lack an emergency fund, leaving them vulnerable to financial shocks. 

Moreover, nearly 50% of Indians save only between 0 and 20% of their income, and 20% save between 20% and 30%, indicating that a large portion of the population isn't setting aside adequate funds for future needs.

This trend highlights a pressing issue: many Indians are not cultivating sufficient savings, often due to certain financial habits. Addressing these habits is essential for building a secure financial future.

1. Spending Without a Budget

Many Indians spend money without a clear plan, leading to unnecessary expenses and reduced savings. A survey showed that about half of urban Indians follow the union budget every year (47%), and close to three in ten (27%) follow it sometimes. This lack of budgeting means they often don't know where their monthly money goes. 

For example, Priya, a marketing executive in Mumbai, earns ₹1,00,000 per month. Without a budget, she spends on dining out, shopping, and entertainment without realising that these add up to ₹30,000 monthly. 

By the end of the month, she wonders why she has little left for savings. Creating a simple budget can help track expenses, identify unnecessary spending, and allocate funds for savings and investments. This practice ensures financial stability and prepares individuals for unforeseen costs.

2. Ignoring Small Daily Expenses

Small daily expenses, often overlooked, can accumulate over time, significantly impacting one's savings. These seemingly insignificant costs, when added up, can amount to a substantial portion of monthly income, hindering financial growth.​

Common Overlooked Expenses

• Daily Coffee Runs: Purchasing a ₹100 coffee daily results in ₹3,000 monthly.​
• Frequent Cab Rides: Opting for cabs instead of public transport can add ₹200 per trip, totalling ₹4,000 monthly for a daily commuter.​
• Impulse Online Shopping: Unplanned purchases of ₹500 weekly lead to ₹2,000 monthly.​

Impact on Monthly Budget

These small expenses cumulatively amount to ₹9,000 monthly, which is a significant portion of income that could be directed towards savings or investments.​

Strategies to Manage Small Expenses

• Track Daily Spending: Use apps or maintain a diary to monitor daily expenses.​
• Set Spending Limits: Allocate specific amounts for discretionary spending.​
• Opt for Homemade Alternatives: Preparing coffee or meals at home can reduce costs.​
• Plan Purchases: Avoid impulse buying by planning and budgeting for non-essential items.​

Individuals can enhance their savings and achieve financial stability by being mindful of these small daily expenses and implementing control strategies.​

3. Relying Too Much on Credit Cards and EMI

Excessive dependence on credit cards and Equated Monthly Instalments (EMIs) can lead to financial strain. While they offer 
immediate purchasing power, misuse can result in mounting debts.​

• High Interest Rates: Credit cards often carry interest rates of 24–36% annually.​
• Minimum Payment Trap: Paying only the minimum due prolongs debt repayment and increases interest paid.
• Multiple EMIs: Handling several EMIs simultaneously can strain monthly budgets.
• Credit Score Impact: Delayed payments negatively affect credit scores, limiting future loan opportunities.​
• Hidden Charges: Late fees and other charges add to the debt burden.​
• Psychological Stress: Continuous debt leads to anxiety and affects overall well-being.​
• Financial Insecurity: Accumulated debt reduces financial flexibility in emergencies.​

Limiting credit card usage and ensuring timely EMI payments are essential to maintaining financial health.

4. Not Investing Early

Many Indians delay investing, believing they have plenty of time to start later. However, time is the most valuable asset for wealth creation. The earlier you invest, the more your money grows through compounding. Take Ramesh, a 25-year-old software engineer, and Sunil, a 35-year-old manager.

If Ramesh invests ₹5,000 monthly in an SIP at 12% annual returns for 20 years, he will have around ₹50,00,000. If Sunil starts the same SIP 10 years later, he will have only ₹15,00,000 in 10 years. The difference is staggering, even though the monthly investment is the same.

Delaying investments means missing out on the power of compounding. Many wait until their 30s or 40s, but by then, they must invest significantly more to reach the same goal. Starting early, even with a small amount, ensures financial stability and long-term wealth creation.

5. No Emergency Fund

Many Indians live to pay cheque to pay cheque without setting aside money for unexpected situations. Not having an emergency fund can lead to debt and financial stress, whether it’s a sudden medical expense, job loss, or home repair. 

How Much Should You Save?

Financial experts recommend saving at least 3-6 months’ expenses. For example, if your monthly expenses are ₹50,000, you should have at least ₹1,50,000 in an emergency fund. This ensures that you have enough to cover essentials even if your income stops.

Why Is It Important?

• Medical Emergencies: Sudden hospital bills can cost ₹1,00,000 or more. Without savings, you may need to take loans.
• Job Loss: It may take months to find a new job, and without savings, you may struggle to pay rent, EMIs, and bills.
• Unexpected Expenses: Car repairs, home maintenance, or urgent travel can come up anytime.

Where to Keep It?

A combination of a savings account and liquid mutual funds works best for emergency funds.

Steps to Build an Emergency Fund

• Start small by saving ₹5,000-₹10,000 monthly.
• Set up an automatic transfer to a separate account.
• Cut down on non-essential expenses to build savings faster.
• Keep the fund accessible but separate from daily spending.

An emergency fund prevents financial panic and gives you peace of mind during unexpected situations.

6. Overspending on Social Status

In India, social pressure often leads to overspending. Many people buy expensive cars, host grand weddings, or upgrade to 
premium smartphones to show status, even when they can’t afford it. 

While these expenses may impress others, they can drain savings and create financial stress.

• Big Fat Indian Weddings: The average Indian wedding costs ₹10,00,000-₹50,00,000. Many families take loans just to afford lavish functions.
• Luxury Gadgets: Buying the latest iPhone for ₹1,50,000 when a ₹30,000 phone can do the job adds unnecessary expenses.
• Expensive Dining: Dining out frequently at premium restaurants can cost ₹5,000-₹10,000 per month.
• Designer Brands: Many spend ₹5,000-₹20,000 on branded clothing when budget-friendly options are available.
• Costly EMIs for Cars: Some take ₹20,00,000 loans for luxury cars instead of buying a practical one within ₹8,00,000.
• Overpriced Housing: Many purchase homes worth ₹1 crore even if their income doesn’t support the EMI.
• Frequent Foreign Trips: Spending ₹3,00,000-₹5,00,000 annually on vacations without savings creates long-term financial instability.

7. Ignoring Tax-Saving Investments

Many Indians wait until the last moment to think about tax-saving investments. Instead of planning, they rush to invest in any available option without proper research in March. 

This results in poor financial decisions, missed tax benefits, and lower returns. Tax planning is not just about saving money today; it helps create wealth over the long run.

For example, Priya, an IT professional, earns ₹10,00,000 annually. If she doesn’t invest in tax-saving instruments, she may pay ₹1,00,000 more in taxes. However, by using tax-saving options under Section 80C, she can reduce taxable income and increase savings.

Popular Tax-Saving Investment Options

1. Public Provident Fund (PPF)
   
   PPF is a government-backed scheme offering 7-8% tax-free returns. It has a 15-year lock-in, making it ideal for long-term savings. Investing ₹1,50,000 annually in PPF can reduce taxable income while ensuring safe returns.
   
   
2. Equity-Linked Savings Scheme (ELSS)
   
   ELSS offers tax deductions under Section 80C, with a lock-in of 3 years. It provides higher returns (10-15%) than traditional options but carries some risk. If Amit invests ₹1,50,000 in ELSS annually for 10 years, he could build a corpus of ₹30,00,000.
   
   
3. Employee Provident Fund (EPF)
   
   Salaried individuals automatically contribute to EPF, but increasing voluntary contributions can maximise tax benefits. EPF earns 8.5% interest, and the maturity amount is completely tax-free.
   
   
4. National Pension System (NPS)
   
   NPS allows additional deductions under Section 80CCD(1B) (up to ₹50,000). It helps in retirement planning with market-linked returns. Investing ₹50,000 annually for 25 years can grow into ₹50,00,000 or more.
   
   
5. Fixed Deposits & Life Insurance
   
   5-year tax-saving FDs and life insurance policies provide Section 80C deductions. However, returns on FDs (5-6%) are lower than ELSS or NPS. Life insurance should be chosen for protection, not just tax savings.
   
   

Proper tax planning ensures you pay less tax while growing wealth over time.

8. Not Tracking Expenses

Many Indians do not track their expenses, which leads to overspending and low savings. Without knowing where the money goes, it becomes challenging to plan for future goals. Small, untracked expenses can add to a significant financial drain over time.

How Much Are You Really Spending?

Most people assume they spend less than they do. Small purchases—such as ₹100 snacks, ₹200 coffee, and ₹500 online shopping—may seem insignificant but add up over time.

Why Tracking Expenses Matters?

• Helps identify unnecessary spending
• Prevents overspending and financial stress
• Increases monthly savings
• Creates better financial habits

Common Expense Categories to Track

An annual expense of ₹2,34,000 could have been used for investments, emergency funds, or debt repayment.

Ways to Track Expenses

1. Use Expense Tracker Apps: Apps like MoneyView, Walnut, or Google Sheets help record daily spending.
2. Follow the 50-30-20 Rule: Allocate 50% for needs, 30% for wants, and 20% for savings.
3. Set a Monthly Budget: Fix spending limits to control excess expenses.
4. Use Cash for Daily Expenses: Avoid overspending with credit cards by using physical cash.
5. Review Monthly Bank Statements: Identify unnecessary payments and reduce them.

Tracking expenses creates awareness and builds financial discipline, helping individuals save and invest more efficiently.

Conclusion

Saving money is not just about earning more but managing finances wisely. Many Indians fail to save due to poor financial habits like overspending, ignoring investments, and not tracking expenses. 

However, small changes like budgeting, investing early, and cutting unnecessary costs can make a big difference. 

Focusing on long-term financial security can help individuals build a stable future and avoid financial stress. The key is to start now, even with small steps, and remain consistent in managing money better.

FAQs

1. Why do most Indians struggle to save money?
Many Indians fail to save due to poor budgeting, unnecessary expenses, over-reliance on credit, and lack of investment planning.

2. How can I start saving with a low income?
Begin by tracking expenses, cutting unnecessary costs, following the 50-30-20 rule, and setting aside even ₹1,000 per month.

3. What is the best way to invest in long-term savings?
SIP in mutual funds, PPF, NPS, and ELSS are great options that offer higher returns and tax benefits over time.

4. How much emergency fund should I save?
Experts suggest saving at least 3-6 months' expenses to handle unexpected financial situations.

5. How do I avoid overspending on social status?
Prioritise needs over wants, set spending limits, and avoid buying lux

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