Making Millennials Millionaire: A good financial plan is essential not only to create wealth but also to ensure that you do not fall into the dangerous realm of debt trap that could destroy your life. A good financial plan is all about good budgeting and discipline to stay within the budget. So what is good budgeting? 

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The very first thing we need to do is to understand on what we are spending and how much. This starts from seeing our Bank statement and understanding our spends. The expenses generally fall into 5 categories 

Things you can avoid or change and expenses that you cannot change Expenses you cannot change – Bank EMI, Mobile bill, broadband bill etc Expenses you can/maybe change – Rent, Groceries, entertainment, etc.

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When you don’t think of savings, each expense item will have unnecessary spends. You may be spending too much of luxury grocery, spending too much money on entertainment and eating out, may be staying at a higher rented place than necessary etc. 

Next step is to look at all the line items and make a considered budget for each:

Take Home salary 

50,000 

 

 

Total Expenses 

27500 

 

 

EMI 

1000 

 

 

Cash for family 

2000 

 

 

Rent 

10000 

Was 12,000 will 

reduce to 10,000 

 

 

Groceries 

 

9000 

Was10,000; 

reducing 1000 of unnecessary 

spends 

 

 

Fuel 

 

1000 

Was 1500; 

reducing 500 of 

unnecessary spends 

 

Holiday Planning 

3000 

Rs. 37,500 

After 12 months at 7.5% FD interest investment scheme 

Misc 

1500 

 

 

Availablefor 

Investments 

22,500 

 

Amount after 5 Years 

Defensive Equity at 10% 

return 

6750 

10% 

5,27,000 

Aggressive investment 

at 15% returns 

15,750 

15% 

12,30,000 

Net worth after 5 years 

17,57,000 

The best part here is that if equity performs, there is a chance that you will make at  least 15% to 20% more than the said net worth! 

Question: Do you really need to use it for a car now or a house or none of these? Ever? 

Thought: Car is depreciating; House is binding. If you buy house now with your existing salary, it stops you from going to a bigger home when your salaries and savings increase. salary may increase substantially if you are good. So time buying your home, delay buying your vehicle. 

Also, every year, your salary would increase, and this means your savings too that will add up substantially to your net worth. 

Conclusion: 

In short, to make wealth, you need to budget after cutting unnecessary spends and be disciplined to stick to the budget. 

(Authored by Shashank Udupa, Co-founder and CFO at Avalon Meta)