Here's How Millennials Can Chalk Out a Solid Financial Plan

Jun 01, 2024 / Reading Time: Approx 6 mins

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Here's How Millennials Can Chalk Out a Solid Financial Plan

Millennials, born between 1981 and 1996, navigate a financial landscape vastly different from that of previous generations. Unlike their parents and grandparents, many millennials are burdened with substantial education loans & housing loans, soaring living expenses, especially in metro cities, constantly upward trending personal and professional aspirations, and an unpredictable job market that often lacks the security of past decades.

These challenges can seem daunting, making it difficult for millennials to envision a stable financial future. However, millennials also possess unique advantages, such as the benefit of time, which can be a powerful ally in long-term investing and retirement planning.

This article delves into the specific financial hurdles millennials face and explores strategies they can employ to overcome these obstacles. By leveraging time, technology, and informed financial practices, millennials can build a robust financial future. With a thoughtful and proactive approach, millennials can turn their financial challenges into opportunities, securing their financial well-being for years to come.

Why Is Financial Planning Important for Millennials?

Understanding the importance of financial planning is crucial for everyone. Effective financial planning helps navigate challenges that simply saving money cannot address, such as inflation, which erodes the value of money over time. For instance, due to inflation, Rs 1,00,000 today will be worth less in the next ten years. While financial planning is essential for all age groups, it is particularly significant for millennials.

Despite growing up in a tech-driven world, many millennials lack access to financial literacy, making basic financial tasks, like filing taxes and setting up savings, challenging. Additionally, easy access to credit, coupled with inexperience in managing debt, can lead to volatile financial situations.

Economic changes, whether gradual or sudden, such as the Covid-19 pandemic, which caused a severe impact on GDP, employment, and overall stability, highlight our financial vulnerabilities. This unpredictability underscores the need for millennials to adopt sound financial planning practices to secure their financial future.

Here's How Millennials Can Chalk Out a Solid Financial Plan:

1. Budgeting for Essential Living Expenses:

Effective budgeting and financial planning are crucial, especially considering inflation. To build your savings, you should establish financial priorities and identify avoidable expenses, which will help you adjust your spending patterns. Track and categorise your expenditures to understand where your money goes and identify potential savings. Use your mobile banking app for tracking, or manually review your bank statements and receipts.

Budgeting exercises can help diversify your income across various needs. A common method is the 50:30:20 rule, which divides net income into three categories: 50% for necessities (living expenses), 30% for wants, and 20% for savings and investments. This method allows flexibility in how you allocate spending within these categories.

Therefore, allocate 50% of your income to essential living expenses and basic necessities. This includes housing, utilities, childcare, phone and internet service, food, loan EMIs, insurance premiums, transportation, and other regular bills.

2. Manage Your Debt and Avoid Piling up Debt:

Effectively managing debt is crucial for financial stability. Start by prioritising the repayment of high-interest debt, such as credit cards or personal loans, as these can quickly accumulate and become overwhelming. Paying off high-interest debt first reduces the amount of interest you pay over time, freeing up more money for savings and investments.

Avoid taking on unnecessary debt by carefully evaluating your needs versus wants. Before making significant purchases, consider whether the expense is essential or can be delayed until you have saved enough. Resist the temptation to use credit for non-essential items, and be mindful of the long-term financial impact of borrowing.

Additionally, explore options for consolidating debt, which can simplify payments and potentially lower interest rates. By staying disciplined and focused on reducing high-interest debt, you can improve your financial health and achieve greater financial freedom.

3. Start Investing Early:

Starting to invest early is a crucial step for millennials aiming to secure their financial future. The earlier you begin investing, the more time your money has to grow through the power of compound interest. Even small, regular investments can accumulate significantly over time, providing a substantial financial cushion for future needs such as buying a home, education, or retirement.

4. Diversify Your Portfolio:

Diversifying your portfolio is essential for mitigating risk and optimising returns. By spreading investments across different asset classes, industries, and geographical regions, you can reduce the impact of market fluctuations on your overall portfolio performance.

A diversified portfolio typically includes a mix of equities, bonds, real estate, commodities, and alternative investments. Each asset class behaves differently under various market conditions, allowing you to benefit from the potential upside while minimising exposure to any single risk.

Moreover, diversification helps capture opportunities for growth in different sectors and economies, balancing out potential losses in one area with gains in another. It also provides stability during turbulent market periods, ensuring that your investment portfolio remains resilient over the long term.

5. Invest in Mutual Funds to Achieve Your Long-term Goals:

Inflation erodes the purchasing power of money, so achieving returns that outpace inflation is crucial. equity mutual funds stand out as one of the best options to grow your wealth through strategic investments.

Investing in mutual funds offers millennials a powerful tool to combat inflation and accelerate progress towards their financial goals. It provides an opportunity to participate in diversified portfolios managed by professionals, mitigating individual stock risks and leveraging market opportunities.

One of the significant advantages of mutual funds is their potential to outpace inflation over the long term. By investing in a mix of equity, debt, and other asset classes, mutual funds aim to generate returns that surpass the inflation rate, preserving the purchasing power of invested capital.

For millennials, this means that their investments have the potential to grow steadily over time, helping them achieve financial milestones early in life. Whether saving for a down payment on a home, funding higher education, or building a retirement nest egg, mutual funds offer flexibility, accessibility, and the potential for attractive returns.


Millennials can align their Systematic Investment Plans (SIPs) with S.M.A.R.T financial goals, diversifying their portfolios across different asset classes such as equities, debt, gold, commodities, and real estate to mitigate risk.

Diversification with the right asset mix reduces risk, considering each asset class has unique performance cycles and risk-reward levels. A diversified approach is wise since it is impossible to predict which assets will perform best.

For smart diversification, it is advisable to consider tools like PersonalFN's SMART Fund Explorer, which helps align mutual fund investments with financial goals, offering tactical allocation for portfolio stability and better risk-adjusted returns. This tool provides tailored investment options based on risk profile and return expectations, with access to recommended mutual fund schemes from our research team.

Through SIPs, millennials can start investing in small amounts regularly, harnessing the power of compounding to grow their wealth over time. By incorporating mutual funds into their financial strategy, millennials can effectively combat inflation and work towards realising their financial goals sooner rather than later.

[Also Read: How You Can Use the 'SMART Fund Explorer' to Accomplish Your Financial Goals]

6. Cover Your Loved Ones with Insurance:

Apart from external factors like pandemics and economic downturns, unforeseen events such as medical emergencies can swiftly disrupt your financial security. Hence, investing in insurance plans becomes imperative to safeguard your financial independence, especially during times of uncertainty.

Contrary to popular belief, insurance plays a crucial role in financial planning. It is essential to have sufficient insurance coverage to mitigate risks to life and health. While a life insurance policy ensures your family's financial stability in the event of your premature demise, a health insurance policy assists in covering hefty medical expenses.

Having adequate insurance coverage should not be viewed as optional; rather, it should be prioritised. Given the uncertainties brought about by events like the COVID-19 pandemic and medical emergencies, maintaining optimal insurance coverage for both life and health is indispensable for ensuring financial freedom.

7. Build an Emergency Fund:

Life is unpredictable, making it essential to be financially prepared for unexpected events. Allocating a portion of your salary to build an emergency fund is crucial.

An emergency fund provides a financial cushion during turbulent times. In the event of an economic downturn or recession, the risk of job loss or salary cuts increases. Therefore, it is vital to set aside money for a contingency fund to cover regular expenses until you secure another job or steady income.

Ideally, an emergency fund should cover 12-24 months of household expenses, including loan EMIs. Start by putting any surplus into a separate savings bank account or a recurring deposit. You can also consider investing in liquid funds either through a Systematic Investment Plan (SIP) or a lump sum to ensure easy access to your emergency savings when needed. This preparation can provide peace of mind and financial stability during unforeseen circumstances.

8. Create a Retirement Corpus:

Evaluate various retirement options, including Mutual Funds, National Pension Scheme (NPS), Employees Provident Fund (EPF), equities, ETFs, and bonds, either at the onset of your career or within the first 1-2 years of employment. Ensure you maximise the benefits offered by these options. The key is to initiate retirement planning early, as it is never too early to start.

Utilise Retirement Calculators to calculate the required savings amount and seek guidance from a financial advisor to develop a retirement strategy tailored to your objectives and financial circumstances. By assessing these options early and seeking professional advice, you can lay a solid foundation for your retirement and work towards achieving your long-term financial goals with confidence.

9. Invest in Tax-advantaged Products:

It is essential to capitalise on investment avenues that offer tax benefits, thereby optimising returns while reducing tax burdens. Explore tax-saving instruments such as Equity Linked Savings Schemes (ELSS), Public Provident Fund (PPF), and National Pension System (NPS), which provide deductions under Section 80C of the Income Tax Act.

Investing in ELSS mutual funds not only offers potential market returns but also qualifies for a tax deduction of up to Rs 1.5 lakh annually. Similarly, contributions to PPF accounts provide tax benefits, with the interest earned being tax-free. Moreover, investing in NPS allows for deductions under Section 80CCD(1B), providing an additional tax benefit of up to Rs 50,000 per year.

By strategically using these tax-saving investment options, Indian investors can enhance their wealth accumulation while efficiently managing their tax liabilities.

10. Review Your Portfolio Periodically:

Regularly reviewing your investment portfolio is crucial, particularly for millennials, whose financial needs and aspirations evolve over time. As millennials progress in their careers, their income, expenses, and long-term goals undergo significant changes. Periodic portfolio reviews ensure that their investment strategy remains aligned with their current financial situation and objectives.

By reviewing your portfolio periodically, you can assess the performance of your investments, identify any underperforming assets, and make necessary adjustments to optimise returns. Additionally, as millennials experience major life events such as marriage, buying a home, or starting a family, their investment priorities may shift, necessitating a reassessment of their portfolio allocation.

Furthermore, changes in market conditions, economic trends, and regulatory developments can impact the performance and risk profile of investment assets. Regular portfolio reviews enable millennials to stay informed about market dynamics and make proactive decisions to safeguard their financial interests.

Ultimately, by reviewing their portfolio periodically, millennials can ensure that their investment strategy remains adaptable and resilient to achieving their evolving financial goals.

11. Educate Yourself:

Millennials need to prioritise financial literacy to navigate the complexities of modern finance and make informed decisions about their money. With the rapid evolution of financial products and services, coupled with the increasing prevalence of digital transactions, understanding financial concepts is crucial for achieving financial well-being.

By dedicating time to financial education, millennials can learn essential skills such as budgeting, saving, investing, and debt management. This knowledge empowers individuals to make informed decisions about their finances, enabling them to set realistic goals and develop effective strategies to achieve them.

Moreover, financial literacy equips you with the tools to recognise and avoid common financial pitfalls, such as excessive debt, impulse spending, and fraudulent schemes. It fosters a mindset of financial responsibility and resilience, helping individuals weather economic uncertainties and adapt to changing circumstances.

At PersonalFN, we encourage you to enhance your understanding of finance and become a 'Financial Guardian' for your family. By learning the elements of financial planning, you can take on the role of your family's financial planner.

If you are wondering how to achieve this, PersonalFN's unique "Certified Family Guardian" initiative provides an exclusive opportunity to master the finer points of money management.

To improve your financial well-being and secure your child's financial future, consider enrolling in the "Certified Family Guardian" program today!

To conclude:

Crafting a solid financial plan is essential for millennials to navigate the unique challenges and opportunities they face in today's dynamic economic landscape. By embracing strategies tailored to their circumstances, such as budgeting effectively, managing debt wisely, and investing early and diversely, millennials can lay a strong foundation for financial security and prosperity.

Moreover, prioritising financial literacy, staying informed about market trends, and periodically reviewing their investment portfolios empower millennials to make informed decisions and adapt to changing circumstances.

As you start your journey towards achieving your financial goals, you must recognise the value of discipline, patience, and resilience in navigating the inevitable ups and downs of the financial journey. With dedication, strategic planning, and a commitment to lifelong learning, you can pave the way towards a future of financial independence, stability, and success.

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Hiral Bhuta is a Investment Consultant & Principal Officer. She is a seasoned professional in the financial services industry, currently serving as an Investment Advisor and Financial Planner at PersonalFN. With her expertise, she plays a pivotal role as the Principal Officer appointed under SEBI's amended IA Regulation. Hiral holds distinguished certifications such as Certified Financial Planner (CFP) and NISM XA & XB, complemented by a post-graduate degree in commerce (M. Com). Her primary areas of focus encompass financial planning, investment advisory, and wealth management, where she leverages her knowledge and skills to provide tailored solutions to clients. With a cumulative experience spanning five years, Hiral brings a wealth of expertise and insight to her role at PersonalFN, ensuring clients receive expert guidance and support in navigating their financial goals.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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