This article gives the earning youth an opportunity to understand how to ’Divide and Rule’ over money. This helps them to best utilize their money.
A time period must be selected in order to understand the amount of money that you can spend on a daily or a weekly basis. Understanding the capacity of your purse is as important as learning the capacity of a machine to produce a certain number of goods. E.g. Raj decided to prepare a budget for the next 3 months. Suppose the budget for each of the three months is Rs. 5,000. This gives you an idea of how it will be possible to save money.
Creating a budget gives you an idea of how to divide a budget. Using an Excel Sheet for preparing this budget is required. It helps the mind to psychologically believe it is a formal and real effort to save money. Suppose your budget is Rs. 5000 per month, you must decide to save Rs. 1000 every month. So just for the purpose of the example, we assume that the 3 months is 12 weeks.
For every week, you must make a list of expenses that he/she will incur. You must be aware of the expenses he will incur during the month.
Tracking of budget is important not only to identify mandatory and discretionary spends, but also ensure that you don’t overspend.
Starting to save is a good step but the ultimate objective of the money you save helps in order to get clarity and keep an overall objective of saving the money you earn. These goals must be divided into short term, medium term and long term. Short term is 1-3 years. The medium term is 4 -7 years and the long term is greater than 7 years. This helps to organize and pen down your goals, ultimately you will be able to determine how much and for how long you will need to invest.
If your financial goal for the next decade is to purchase real estate, you must invest your money in time deposits like fixed deposits or recurring deposits in order to maximize interest earnings.
The expenses must be divided into the following three categories:
Essential, Discretionary and Entertainment. Among these expenses, the expenses on entertainment include luxury needs of people and this must be reduced. The essential expenses are something which are a part and parcel of survival, and therefore is required to be incurred. Discretionary expenses must be dealt with smartly. Deciding which are of utmost necessity must be incurred, the ones which are not must not be incurred.
As part of the discretionary expenses, a young earner must be able to save as much as possible by money by shopping, dining and transporting by being a little smarter As the ecommerce space has been growing at a fast pace, it is important to make the best of the deals they have. E commerce giants like BigBasket, Amazon GO, Flipkart and a few others must be kept a track of. While purchasing in retail outlets, you must make a list of the items that you want to purchase. You must follow this budget and not exceed the number of items purchased. Food delivery apps like Uber Eats, Zomato and Dineout that give huge discounts on food products. One of the flagship products of Zomato is Zomato Gold which gives its members a 1+1 on food products and a 2+2 on selected restaurants which have agreed to partner up with Zomato Gold.
In terms of transport, using public transport over auto-rickshaws, kaali peeli taxis and cab aggregator services will be easier on your pocket. Even in public transport like the local trains of Mumbai, you must use railway passes rather than purchasing tickets on a daily basis.
Suppose your income is Rs. 10,000.
The money available to you is Rs. 4000. Financial literacy is important while
investing the money correctly. In the beginning, you must invest in simple
instruments like a recurring or fixed
deposit. “If it’s a short-term goal, keep your investments in debt”; “If
it’s for the long term, you must invest in equity.”
You must divide the following instruments based on whether you want to invest in short term, medium term and long term:
For short-term goals, opt for recurring deposits, liquid funds, fixed deposit or short-term debt funds. For the medium-term, you could choose balanced funds and equity linked saving schemes. For the long term, equity mutual funds, National Pension Scheme, Public Provident Fund and Employee Provident Fund could be your instruments of choice.
In order to make reduce taxable income and therefore, increase disposable income we must be aware of what income is taxable and what is not. By investing your money through education you will be able to increase disposable Income.
For you, purchasing the correct insurance policy is of utmost importance. Health, Life, Property and Motor Insurances must be taken. While choosing a Life Insurance, you must choose on the basis of the concept “how to save money” and choose a term insurance plan. The money back and endowment have higher premiums over longer period of cover time period. While choosing the health insurance you must be assured at 10 times of your net monthly salary which must be at the least between Rs. 3 lakh and Rs. 5 lakh. Along with a basic health plan you must take a critical illness plan.
So the first thing to do, even before you start saving for smaller, short-term goals, is to build an emergency corpus. This should be equal to 3-6 months of your household expenses, and should also include any loan repayments and insurance premium obligations.
The best option is to put it in a short-term debt fund, liquid fund or a sweep-in bank account. This will ensure easy availability and higher rate of interest for your money.
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