Tips for millennials for a sound financial planning

Millennials constitute about 30% of India’s population, and are also a part of the startup budding crowd. The financial and investment habits of older generations were different from those of millennials. “For the former, the traditional way of investing was buying a house, gold or probably a grand marriage; they used to invest long-term. Let’s also not forget that people from that generation were saving more and spending less. They were also compromising on their desire to spend. That generation had a lot of patience, endurance and even when they used to dream of getting an asset, they never got it unless they had sources to get it,” says economist and finance expert Sharad Kohli. He adds, “Whereas, the millennial population is a bit restless, even if in a good way; and they don’t compromise on their desire to spend, which is what makes it important for them to plan their finances and manage their money well — which is required.” Kohli shares with us some tips for the millennials to manage their finances well:Manage your money wellAs a financial expert, my tip for them is to follow the 50-30-20 rule. It means that out of the salary they earn, they should spend 50% on their current demands or indispensable expenditures — as in, house rent, commutation, food, etc. Whereas, 30% should be allocated for personal needs — like getting trendy clothes, spending on friends, going out to parties and so on. And 20% should be mandatorily put on savings. That will save the millennials on a rainy day, at a time when they would need money or if they need to spend it on vacation or buy a gadget. If they don’t have savings, they won’t be able to spend on these things and we may find them asking for money from here and there, or feeling depressed — because they are not able to buy the things they desire. Don’t forget about insuranceMost of the millennials forget about insurance. Suppose they end up losing their phone, or crashing their car — and they find they don’t have auto insurance! What about health? Tomorrow, god forbid, if there is an illness or an accident and they need to get hospitalised, then it takes away all their money. So I think life, health and auto insurance — millennials must spend on these particular aspects.Invest for future or retirementWhen millennials are asked about their investment for retirement, they say ‘oh it’s 25-30 years from now. We don’t want to spend on that right now.’ But what they forget is, small amount allocated for retirement — or for future, even if it’s for going abroad, having a grand marriage or celebrating your birthday on a plane or some dream that they want to fulfil — if they do not have enough money in your kitty, they will not be able to fulfil these; most importantly, one must invest on their retirement because at the end of the day, every millennial has to become old. At some point, they would like to hang their boots and retire. I’ve seen people retiring at the age of 45; they take early retirement because they want to follow their passion or they have some dream of spending their time on a mountain or travelling somewhere. Thus, investing for retirement is an absolute must. Also, I noticed that the investment patterns of the older generations were different; these people used to invest in gold, fixed deposits, national savings certificates and in real estate to a certain extent. Whereas, millennials would go for cryptocurrency, try their hands at fast-moving stock markets or derivative markets — where they can make fast money. There’s nothing wrong in that, though caution is advised while opting for things which are not recognised yet. Diversify your investment and borrow lessWhat millennials do is, they put all their eggs in the same basket! That is, putting all money in the same place. They get carried away by handsome returns, which may not be sustainable or come out to be true at all times. Also, they follow the YOLO (you only live once) concept — in that process, they over-spend — more than, or everything, they earn. Then they tend to borrow. So my advice would be they should avoid overborrowing, living on EMIs or loans. They should curtail the quantum of loans that they take. They should only borrow as much as they can comfortably pay. Even if they have to cut down on their desires, they must have those restrictions and refrain from overborrowing. Spending more than they earn is a big NO.