Millennials form a significant portion of the Indian workforce and are slowly turning into the chief breadwinners of families. However, Indian millennials cut a sorry figure when it comes to savings. Inclination towards savings takes a backseat for most millennials, as reported by a Deloitte survey that found Indian millennials saving less than 10% of their income.
Given the times we are living in, savings should be a top priority, and the good thing is that it’s no rocket science. Millennials can kick-start their savings journey in 2022 with minimum fuss through these simple ways.
1. Strictly Implement the 50/30/20 Budget Rule
The 50/30/20 budget rule is a simple and effective method to manage finances and imbibe the habit of savings. The proposition under this rule is simple. You spend 50% of your income on necessities, i.e., expenses that are an absolute must. These include:
- Grocery and Utility Bills
- Children’s education fee
- EMIs and insurance premium
After spending 50% on needs, wants make up the next 30% expenses. Wants are lifestyle-related expenses such as dining out, buying that expensive gadget that’s beyond budget, etc. More often than not, needs become wants when we take them beyond the basics. After addressing the wants, millennials must save 20% of their income.
The beauty of this rule is that millennials can apply it irrespective of their cash flow. It gives them the window to save at least something from their income. The 20% savings each month will add up to a considerable corpus going forward.
2. Start Systematic Investment Plan (SIP) in Mutual Funds
A systematic investment plan or SIP in a mutual fund is another option millennials have at their disposal to start saving. In a SIP, a specific amount of money is deducted from your savings account and invested in your chosen fund on a fixed date. SIPs bring discipline into investment and help accumulate the desired corpus for different life goals in a disciplined and sustained manner.
However, the latent benefit of SIP is that it results in forced savings. As the money is invested on a particular date, it automatically results in the desired savings. SIPs bring other benefits to the table. They help you:
- Stay invested across market cycles
- Help accumulate more units when markets are down and vice versa
- Imbibes a disciplined savings habit
- Brings in the power of compounding in the long run that augments your wealth exponentially
Depending on their needs and cash flow, millennials can set up SIPs on a weekly, fortnightly, or monthly basis. SIPs in equity mutual funds also help generate inflation-beating returns in the long run and accomplish long-term goals such as children’s education and retirement.
However, for SIPs to generate the desired returns, choosing a fund with a consistent long-term track record is crucial. First-time investors need to be KYC-compliant before starting SIPs in their chosen fund.
3. Avoid Lifestyle Expenses
Indulging too much in lifestyle expenses can prove to be counterproductive. Thanks to digitalisation, millennials can easily avail loans in just a few taps. There are multiple portals and apps from where one can apply for loans in a jiffy. However, these lifestyle-related loans are a costly proposition. They carry a premium interest rate which pushes the EMI amount significantly.
These strain finances, and if even one EMI is missed, credit score takes a hit. Also, lifestyle expenses don’t add real value to wealth. In difficult times such as Covid-19, maintaining lifestyle expenses can be quite challenging when income is already under strain.
Millennials can save this money, which could significantly add to their corpus in the long run. Cutting out eating in restaurants every weekend, avoiding the urge to change your smartphone every six months, and making small lifestyle-related changes go a long way in saving a good sum of money.
4. Buy Health Insurance
A medical contingency can wipe out a chunk of savings at one go. Even a few days of hospitalisation can result in bills running into lakhs of rupees. However, things can be different with a health insurance plan in place.
A health plan prevents out-of-pocket expenses and makes sure funds are not a paucity in receiving the best possible treatment. For millennials in metros, it’s advisable to buy a health plan with a sum insured of at least INR 10 lakh. A family floater plan is ideal for providing coverage to all family members.
Apart from buying a regular health plan, millennials must also look forward to buying a critical illness insurance plan. Treatment of critical ailments such as stroke, kidney failure, liver transplant, etc., is pretty high, and the coverage provided by a regular health plan may not be sufficient to cover the entire cost of treatment.
In such a scenario, a critical illness policy comes to the rescue as it provides a lump sum to treat the disease, irrespective of the cost of hospitalisation. Critical plans are fixed benefit policies, unlike regular plans that reimburse only the actual hospitalisation expenses.
5. Not Take Unnecessary Debt
Taking debt that’s not required can often become a tight noose around the neck of borrowers. Not every form of debt is bad. A debt availed to learn a new skill or buy an asset is a good one but the one to meet instant gratification could lead millennials into trouble. Swiping credit cards for every small purchase is not a good idea as credit card interest rates are on the higher side.
Also, paying only the minimum balance is not desirable. Therefore, before taking a debt, millennials must analyse if they need it or not. Equally essential is to read the fine print of the loan documents to avoid surprises later.
Just like equity investments, millennials must adopt a long-term approach towards savings. They should kick-start their savings journey from the day they start earning so that they are on a robust financial footing and can ride the ups and downs with ease.