Case Study 1
- What percentage of their monthly income do the Agarwal family spend on necessities?
- How much do the Agarwal family allocate towards comfort expenses monthly?
- What is the total expenditure on luxury items for the Agarwal family per month?
- How much savings can the Agarwal family potentially set aside monthly for their children’s education and retirement, assuming they aim to save 15% of their income after covering all expenses?
Scenario:
The Agarwal family consists of 2 working adults and 2 school-aged children. They have an average household income of Rs. 90,000 and are looking to prioritize their spending to save for future expenses, such as their children’s education and retirement. Analyse how they could possibly be considering each aspect of life as Necessity, Comfort & Luxury.
Numerical breakdown of expenses for the Agarwal family, categorizing them into Necessity, Comfort, and Luxury, based on their average household income of Rs. 90,000 per month:
Solution:
Analysis:
- Necessities for Life: The Agarwal family prioritizes food, basic healthcare, rent, and utility bills. They ensure that these essential needs are met first.
- Necessities for Efficiency: Both adults need reliable transportation for commuting to work, and the family maintains a basic internet connection for educational purposes. The children’s education is also a priority, with expenses for school supplies and extracurricular activities.
- Necessities by Convention: The family ensures they have appropriate clothing for work, school, and social events. They also maintain basic home appliances like a refrigerator and washing machine.
- Comforts: The family allocates a portion of their budget to comforts such as occasional dining out, mid-range smartphones, and modest home improvements.
- Luxuries: Luxuries like designer clothes, luxury vacations, or high-end gadgets are deprioritized and saved for special occasions or after ensuring savings goals are met.
Answers based on the Data:
1. Percentage of their monthly income spend on necessities
- Total monthly income: Rs. 90,000
- Total spent on necessities: Rs. 70,000
- Percentage spent on necessities = (Rs. 70,000 / Rs. 90,000) * 100
- Percentage spent on necessities = 77.78%
- The Agarwal family spends 77.78% of their monthly income on necessities.
2. Allocation towards comfort expenses monthly
- Total spent on comfort: Rs. 8,000
- The Agarwal family allocates Rs. 8,000 towards comfort expenses monthly.
3. Total expenditure on luxury items for the Agarwal family per month
- Total spent on luxury: Rs. 8,500
- The total expenditure on luxury items for the Agarwal family per month is Rs. 8,500.
4. Savings
- Total monthly income: Rs. 90,000
- Total monthly expenses (necessities + comfort + luxury): Rs. 70,000 + Rs. 8,000 + Rs. 8,500 = Rs. 86,500
- Savings potential = Total income – Total expenses
- Savings potential = Rs. 90,000 – Rs. 86,500 = Rs. 3,500
- Savings allocated for education and retirement (15% of income):
- Savings = 15% of Rs. 90,000
- Savings = Rs. 13,500 per month
- The Agarwal family can potentially set aside Rs. 13,500 per month for their children’s education and retirement savings, assuming they aim to save 15% of their income after covering all expenses.
This numerical breakdown illustrates how the Agarwal family manages their finances, prioritizing necessities while allocating reasonable amounts to comfort and luxury expenses. By budgeting carefully and saving diligently, they can work towards achieving their financial goals of funding their children’s education and securing a comfortable retirement.