The millennial generation is earning a lot of money. In the first few years of your career, creating a budget may not sound so cool.
Well, you have just started flying and what is the use of earning if you cannot spend it the way you want? But as a financial planner, I have noticed that this generation is saving more than what the earlier ones did at their age!
However, just saving is not enough! They need to carve out a roadmap for their financial goals with proper timelines and work on achieving them. And, what better way to achieve these goals than investing!
Fortunately, millennials have seen the technological transition throughout their life. They have witnessed the exponential growth of technology over the years. This generation has seen the shift from physical to online modes of investments.
Here are a few points which the millennials need to take into consideration about their investments.
Compounding: We often say that we need to make our money work for us. But how is it done? When it comes to investing, the foremost thing to look for is whether your returns are compounding.
Now, compounding allows you to earn interest on interest. Time plays a key role. The more the time you give, the larger would be the corpus you create!
Asset allocation: We have been hearing this over and over from a long time that you should not keep all your eggs in one basket. It means that allocate your assets to different investment avenues as per your risk appetite across various debt and equity.
Time horizon and goals: As I said earlier, one needs to jot down his financial goals and their timeframe. It gives a clear picture of your current standing and where you want to be. It gives a roadmap to reach your milestone.
Manage your debt: It is often said that this generation is prone to living from paycheck to paycheck. The use of credit cards must be limited to avoid splurging of money on expensive and unwanted things.
Start saving for your retirement: It is advisable to start saving for your retirement the day you get your first paycheck. Start investing in long term options such as equity, which can give your higher returns over a long span of time. Depending on your current lifestyle, calculate the retirement corpus you will need and start making contributions accordingly.
Inflation: Over the years, our needs increase and so does inflation. The inflation was 6.93 per cent in August, 2020. Make sure your investments beat Inflation. Otherwise, inflation will eat up your savings.
Be prepared for Emergencies: The COVID-19 pandemic is the best experience realise the importance of having an Emergency Fund. This has probably happened for the first time in our lives wherein the whole economy had stopped. Medical contingencies, job loss and salary cuts are some emergencies that you must be prepared for.
Have a second income: Do not depend entirely on your job. Find multiple sources of Income. It can be a side business (if legally allowed) or earning dividends on your investments and so on.
Maintain discipline with your finances: Being consistent is very important when it comes to creating wealth for the future. You need to make your contributions at regular intervals. For instance, you can link your goal of buying a house to your savings, by starting a monthly systematic investment plan (SIP).
(The writer is CEO and Founder, Money Matters, India)