Financial Planning Essentials: The Significance of Savings Ratio for Building Wealth


The percentage of income that a person saves is referred to as their savings ratio. A person who saves much of their income is said to have a high savings ratio, while one who spends most of it is said to have a low saving ratio.

Saving Ratio = Savings/income*100


– Net income after tax  = 100000

– All Expenses = 60000
– Saving = 100000 – 60000 
– Savings = 40000  
– Hence = 40000/100000
– Saving Ratio = 40%

Achieving financial objectives or planning for retirement are just two examples of the many benefits of increasing the saving ratio.

Following are some suggestions to improve the saving ratio:

Make a budget: Keeping track of your spending will enable you to find areas where you can save more. It helps you keep eye on your financial activities.

Debt reduction: Pay off high-interest debt first, like credit card balances to avoid paying unnecessary interest fees and free up funds for savings.

Life Style Adjustments: Consider making lifestyle adjustments to improve saving ratio, such as reducing your expenses on eating out, cutting back on entertainment costs etc.

What is the Ideal Savings Ratio?

The ideal saving ratio can vary depending on a person’s financial goals, income, and expenses, so there is no standard answer to this question but still for reference we should target savings ratio from 20% to 40% to achieve our goals smoothly. It is important to note that the ideal saving ratio may also change depending on your stage of life.

Additionally, I would like to add not only saving is important but investing your savings after consulting a qualified & SEBI Registered Investment Adviser is also equally important.