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Business News/ Money / Personal Finance/  Mastering the art of budgeting: How Gen Z and millennials can take control of their money

Mastering the art of budgeting: How Gen Z and millennials can take control of their money

Budgeting is crucial for financial control and freedom. Here are tips to get started: set goals, track expenses, optimize income, save and invest systematically, avoid debt, get insurance, and review regularly.

The earlier you start budgeting, the faster you achieve financial freedom. Premium
The earlier you start budgeting, the faster you achieve financial freedom.

Let’s be honest; for most people, budgeting is one of the most tedious activities that one can engage in. Who would voluntarily like to track their income and expenses minutely, month after month? But, if you want to take control of your money, it is one of the first and most critical steps you need to take.

It is necessary to have a reasonable sense of your income, typical expenses, and, therefore, what you have left to invest; a budget will help you do that. And the good news is that the earlier you start, the faster you can achieve financial freedom, at which time budgeting may not be as important! 

So here are a few tips, especially for the youth, to get started on budgeting:

Set financial goals

Unless you have specific goals, managing money is just an academic exercise in which you will soon lose interest. Your long-term goal should be financial freedom, and your medium-term goals could include various wants–a home, a car, holidays, an education for yourself or your children, and so on. Estimate what you will need in life and have a quantifiable financial target. That will give you the impetus to save and invest. 

Track your expenses

Try this, record your expenses for one month–what are you spending on groceries, utilities, transport, dining out, entertainment, etc? You will be amazed at how quickly costs add up, especially in the inflationary environment we are living in. You need to know where your hard-earned money is going, and if you track it, you will devise ways to cut some unnecessary expenses. You may decide to order in less, shop during sales, not make impulsive purchases, and cut back on addictions and indulgences. The awareness will come only if you track expenses. 

Focus on income

You cannot cost-cut your way to financial freedom; focus on the other aspect of budgeting income. Ensure you have optimised your current income regarding taxes; are you taking all the deductions, have you invested in tax-efficient products, etc ? And then, explore whether you can augment your income in some ways; do you have a skill that can get you freelance gigs? Do you have access to assets such as property that can earn you rental income? Can you invest wisely to create new income streams through interest and dividends? 

Save and invest systematically

Once you understand your monthly income and expenses, make sure you systematically invest the savings. While it will vary significantly based on each individual’s needs and financial situation, an aspirational target would be to save 20% to 40% of one’s income each month. Make sure you deploy your savings into appropriate short, medium, and long-term investments based on your goals and risk profile. And be consistent; a disciplined and long-term approach will override any volatility in financial markets.  

Avoid loans

Few things can derail your financial plan faster than personal debt. If you can help it, don’t buy anything on credit; either use the money you have or postpone the purchase. The interest rates and fees on credit cards, personal loans, BNPL, etc., can put immense pressure on you and throw your budget out of sync. 

Get insurance

Unexpected events such as a medical emergency, accident, theft, loss of life, etc., can also derail financial plans for you and your family. Take adequate insurance to protect your loved ones and yourself financially; you can’t stop bad things from happening, but you can certainly prepare for them. 

A budget is not a one-time exercise but a living document that will adapt as your lifestyle and circumstances change. Therefore, review and adjust it frequently. But equally, it is not a cumbersome lifelong activity; once you gain control of your finances, you will probably find yourself relying on a much smaller budget. So put in the effort in the early years, and that will set you up nicely for the future.

Rishi Piparaiya, Best Selling Author and Financial Mentor

We explain here how to ensure a future income from budgeting
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We explain here how to ensure a future income from budgeting

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Published: 27 Aug 2023, 10:37 AM IST
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