Millennials, a recent popular term used to generally define individuals born between years 1981 to 1996. With rising income in the country, a lot of people in this generation often tend to increase lifestyle experiences, such as travel, luxury shopping like high-end sneakers, costly bags and expensive gadgets. These set of people also tend to rely on credit cards which leads to more impulsive buying. As a result, these Millennials often end up spending more than 80% of their total income thus leaving very little or no room for savings and investments.

How to Balance Expenses and Savings?

Creating a Budget

The foremost step aiming to maintain an equilibrium between savings and expenses is setting a clear budget. Before this, it is important to track your spending and know where the money is going. You may prefer tracking a monthly check on your spending. This way, you can know where you have unnecessary expenses/avoidable expenses that may be reduced/curtailed. A simple approach you may consider to budgeting is the 50-30-20 rule: allocate 50% of your income to essential expenses, 30% to discretionary spending, and save the remaining 20%.

Mutual Funds – One of An Ideal Choice For Millennials

Investing in mutual funds may be one of the choices for you as a millennial. These investments not only offer professional management but also encourage the habit of disciplined investing through Systematic Investment Plans (SIPs). With the growing ease of digital platforms and apps, you can easily invest online, track your investments in mutual funds, and adjust your investments whenever needed, all from the convenience of your mobile phone.

There are two ways in which you can invest in Mutual Funds, first lumpsum, which requires investing the amount all at once, and other is the SIP or Systematic Investment Plan route that allows you to invest a fixed amount at regular and fixed intervals as mentioned in the application form. The Millennials may prefer the lumpsum approach as and when they have surplus money to invest but one of the ways to build habit of investing is to invest small amount regularly for a long term through SIP. For investors with multiple goals one may also opt for multiple SIPs and diversify the investment portfolio through different SIPs tailored for long term, medium term and short term investments. Each time an investor invests in a mutual fund, units are allotted at the Net Asset Value (NAV) of the said scheme as per the NAV applicability. Through SIP one may be able to buy more units of a fund when the NAV prices are low and lower units when the prices are high, this averages out the total cost of investment in SIP, a phenomenon well known as ‘rupee cost averaging’. This also helps mitigate market volatility. Not only this, SIP helps in compounding money over time, the potential returns earned by the investor start to generate more probable returns leading to the compounding effect commonly known as ‘power of compounding’.

Let’s say you love shopping and spend around ?4000 every month on it, without giving it much thought. Now, imagine tracking those expenses and realizing that it adds up to ?48,000 a year. What if you decided to trim or cut your shopping budget in half, saving ?2000 each month instead?

Here’s the smart part: instead of just saving that ?2000, you could invest it through a SIP (Systematic Investment Plan). If you invest ?2000 every month for 10 years, at an average return rate of 12.93%, your ?2.4 lakh investment could possibly be double i.e. assume it may be around ?4.91 lakh.

Where to Invest?

Millennials usually have higher risk tolerance than other investors due to the age factor. Hence, they can generally afford to allocate most portion of the portfolio to equity mutual funds, Index Funds or ETFs as they tend to generate higher potential returns when invested for a long-term. Within equity also, they may invest across multiple categories with different risk levels such as large cap funds, mid cap funds, small cap funds, multi-cap funds or sectoral/thematic funds. The small cap mutual fund category comes with highest risk level but seeks to generate higher returns.

Apart from this, they may also consider investing in other asset classes such as gold, real estate to diversify the investment portfolio. It is said that putting all your eggs in one basket is not the right approach. They may consider diversifying the investment portfolio to reduce the overall risk and seek to generate potential returns over the long term.

Dual Focus For Millennials: Aiming for Wealth Generation & Preservation

Investors should not only focus on generating wealth for their future but also preserve the wealth they already have. Investor can seek for wealth generation through investing in high-growth assets such as stocks and equity mutual fund. While Wealth preservation, which is equally important, can be done through investing in potentially stable assets such as traditional fixed deposits, gold etc.

Hence along with SIP, the Millennials can also leverage other systematic investment tools such as Systematic Transfer Plan (STP) and Systematic Withdrawal Plan (SWP). While the former can allow them gradually transfer funds from high-risk one fund to another, helping in reducing impact of market volatility; SWP can provide a regular income from one’s own investment while the remaining capital stay invested. The latter can be used by investors seeking both capital preservations along with capital generation. By combining both strategies, millennials can help safeguard their existing wealth. Further, to calculate the estimated potential returns from their investment, the Millennials can also use a mutual fund SIP calculator available on websites of most fund houses. However, investors should consult their financial advisor before investing. E.g. If you invest ?10,000 every month through a Systematic Investment Plan (SIP) for 25 years at an expected CAGR of 12%, the total value of your investment would grow to approximately ?1.89 crore. Thus, sip calculator can help you know amount you should invest along with exact tenure to generate the required corpus.

Key Takeaways:

• Time changes, and preserving wealth becomes as important as accumulating it.
• While investments carry risk, the right guidance can seek to balance risk and returns effectively.
• Developing systematic investment habits and adhering to a budget are key to financial success.
• It's essential to maintain an emergency corpus for unexpected situations like financial shocks or medical emergencies.

Millennials should seek advice from financial planners or mutual fund advisors to help plan finances systematically.

Not only this, it is also important for these millennials to carefully research about different tax saving schemes. They can prefer investing through Equity-linked Savings Scheme (ELSS) that allows to save tax up to Rs. 1.5 lakh in a financial year apart from traditional fixed deposits (FDs) and other health insurance schemes that come with tax benefits.